Industry continued its decline in September, and the poor performance of the sector played a significant role in Hungary falling into a technical recession once again. As discussed in the last issue’s Macroscope column, the volume of Hungary’s gross domestic product in the third quarter of 2024 was 0.8% lower (according to raw data) compared to the same period of last year.
The latest industrial output data explains part of the poor performance: the volume of industrial production dropped in September 2024 by 7.2%; based on working-day adjusted data, it declined by 5.4%, year-on-year. According to seasonally and working-day adjusted data, industrial output was 0.7% lower than in August 2024, according to the latest data released by the Central Statistical Office.
Production volume decreased in September in the great majority of the manufacturing subsections. Of those with the greatest weighting in the total, falls were observed in the manufacture of transport equipment, electrical equipment, and computer, electronic and optical products. Better news was found in the manufacture of food products, and in beverages and tobacco products, both of which increased.
In the first nine months of the year, industrial production was 4.3% lower than in the same period of 2023. According to seasonally and working-day adjusted indices, industrial output was below August 2024 by 0.7%.
According to Péter Kiss, investment director of Amundi Fund Management, the weak preliminary GDP data had already indicated weak industrial production, although the data published on Nov. 6 fell short of the most pessimistic expectations based on this.
According to Kiss, the data suggests that the industry’s doldrums are far from over. Based on European economic indicators, a quick turnaround is not expected.
The fact that residential consumption has been extremely sensitive to adverse economic processes in the recent period and that business confidence has not been left untouched by the weak industry could cause a headache for the government, Kiss warns.
“There is nothing new under the sun: the output of domestic industry has been stagnant or slightly decreasing for about two years. For the time being, there are no factors in the field of core processes that would represent an upward risk for the rest of the year,” said Erste Bank in a press release reacting to the industrial output data.
Audi’s contract manufacturing in Győr, launched at the end of September, may bring some output expansion, but at the same time, it is a warning that it was apparently not able to offset the decline in other sectors on a monthly basis.
“The plant closures and large-scale downsizing of the German manufacturers are only now coming. In the medium term, we can perhaps be optimistic: the significant capacity expansions entering production, mainly in the vehicle industry and in the field of battery production, may result in a relevant recovery of output in larger volumes starting from the second half of next year,” the bank’s analysts stated.
Industrial production still shows no signs of recovery; the most significant role in this is played by the weakening of external demand, according to Dániel Molnár, senior macroeconomics analyst at Makronóm Intézet.
Declines occurred in the vehicle manufacturing, electrical equipment manufacturing, computer, electronic, and optical product manufacturing sectors, all of which primarily produce for export. The main difficulty here is still caused by the weakness of Hungary’s most important foreign market, Germany. On the other hand, the food, beverage and tobacco manufacturing sector was able to expand. It is no coincidence that domestic demand is more important for these.
As for the further outlook, there is still significant uncertainty, which in turn has a negative impact on the economic outlook, Molnár says.
“The upswing requires the recovery of external demand, which, according to our expectations, can only start meaningfully from next year. At the same time, by turning the ongoing large investments into production, if there is demand, the industry could provide a substantial growth surplus to the economy as a whole,” he added.
The data highlights that the solution to excessive dependence on the German economy is economic neutrality, the Ministry of National Economy said in a press release.
“In addition to the West, which is struggling with competitiveness problems, our country’s economic relations must also be strengthened with the East, which is currently showing much greater growth,” the ministry said.
“Economic neutrality can contribute to the restoration of the performance of industry, and those significant giga-investments will continue to be involved in the performance of the national economy in the near future, such as CATL, BYD, BMW, Semcorp or EcoPro, which can give new impetus to Hungarian industry,” it added.
The government has drawn up a New Economic Policy Action Plan consisting of 21 measures, which will pour a significant amount of money into the Hungarian economy, further stimulate consumption, and give new impetus to investments and domestic industry, thus supporting the Hungarian economy to grow above 3% in 2025, the ministry reminded.
Not everyone shares this optimism, though: Erste Bank’s analysts expect only a slight increase in the fourth quarter and say their previous 1.4% growth forecast can no longer be maintained; they have revised this year’s forecast down to 0.5% and that for 2025 to 2%.
This article was first published in the Budapest Business Journal print issue of November 15, 2024.
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