Automotive Industry Driving the Way Forward

Analysis

The performance of the Hungarian industry in 2022 was a positive surprise; however, it was mainly the automotive sector driving the improved output. The energy crisis and the war in neighboring Ukraine still pose significant risks.

The volume of industrial production exceeded the previous year by 2% last December. The working-day adjusted data shows that production rose by 5.7%. The significant difference compared to the raw data is caused by the fact that there were two fewer working days in December 2022 than in December 2021, the Central Statistical Office (KSH) reported on February 7, based on its first estimate.

Working with seasonally and working day-adjusted data, industrial output expanded by 3.8% as of December 2022, an improvement from the November data when there was a 0.7% decrease compared to October. As for the entire year of 2022, the volume of industrial production was up by 5.8% from 2021.

The output of the manufacture of transport equipment, having the most significant weight, and that of electrical equipment increased markedly. At the same time, the volume of production dropped in the majority of manufacturing subsections, including computer, electronic and optical products, as well as food products, beverages and tobacco products, the KSH data reveals.

Expectations Exceeded

The fresh data far exceeded analysts’ expectations. The stagnation of industrial production at the beginning of the fourth quarter was mainly caused by the reduction in or halting of production in energy-intensive sectors as a result of the explosion of energy prices. In November, problems related to oil refining also worsened industrial performance (and partly contributed to the fuel supply disruptions at the end of November and the beginning of December); however, production at the domestic oil refinery was subsequently restored, Magyar Bankholding chief analyst Gergely Suppan commented on the data.

Domestic industrial order stocks are still at a high level, exceeding those from a year ago by about 20%, so easing supplier problems may result in further recovery, Suppan summarized. The performance of the domestic industry in recent years has sharply diverged from that of Germany due to the numerous capacity increases, the inflow of record amounts of working capital, and the economic policy of the government that explicitly supports investments, he emphasized.

In the third quarter of the last year, the growth of industrial production accelerated significantly due to the weak base of a year ago due to the chip shortage and the easing of that shortage in 2022; however, the Russo-Ukrainian war may still pose a number of risks, the analyst warned.

Skyrocketing energy prices forced several sectors to curtail production in the fourth quarter of last year; now, several producers are back in operation thanks to the recent drop in energy prices. External demand may be worsened by the inflation-driven increases in food and energy prices, leading to a decrease in purchasing power, Suppan noted. At the same time, industry could still be stimulated by the very high order stock, which was 19.9% higher last November than a year ago.

Gradual Revival

“After the temporary fluctuations caused by the energy crisis, we expect a gradual revival in the industrial production from the middle of this year, which could be supported by the expected commissioning of new capacities, mainly related to battery production and the automotive industry, as well as the food industry, the chemical industry, and the defense industry,” he added.

Following weak October and November data, industry caused an extremely positive surprise in December, said Péter Virovácz, senior analyst at ING Bank, in his commentary. The growth in December was so strong that the industry was able to compensate for its decline in the previous two months, and the level of production is back close to the level measured in September.

At the same time, according to Virovácz, the Hungarian industry overall is still characterized by being Janus-faced in nature. On the one hand, the production of the heaviest vehicles, as well as that of electrical equipment (thanks to the booming production of battery factories), boosted industrial performance.

On the flip side, production volume decreased in other sectors, such as the dominant food industry and electronics manufacturing. Overall, therefore, the strengthening performance of the automotive and related supplier areas corrected the performance of the industry at the end of the year, according to Virovácz.

“Analyzing the quarterly performances, unfortunately, the fourth quarter still performed poorly. Compared to the third quarter, according to ING Bank’s estimate, industrial output fell by nearly 2% on a quarterly basis. All of this indicates that, in the last quarter, the performance of the industry as a whole may have held back the economy,” the analyst explained.

This article was first published in the Budapest Business Journal print issue of February 10, 2023.

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