In October 2024, the volume of industrial production fell by 0.2%, or 3.1%, when adjusted for working days, compared to 12 months earlier. Based on seasonal- and working day-adjusted data, industrial output exceeded September 2024 by 2%, according to the latest data released on Friday, Dec. 6, by the Central Statistical Office (KSH).
Production volume expanded in most of the manufacturing sub-sectors. At the same time, however, among the most important sub-sectors, there was a decline in both vehicle and electrical equipment manufacturing, while that of computers, electronics, optical products, and food, beverages, and tobacco products increased. Industrial production in the first 10 months of the year was 3.9% lower than in the same period in 2023.
The Ministry of National Economy (NGM) reacted to the data by saying that a double crisis has developed in several European countries, affecting both economics and politics. This is well exemplified by the state of France and Germany, the two most significant economies within the European Union.
Worryingly serious problems are burdening the European automotive industry. In Hungary’s most significant foreign market, Germany, factories are struggling with severe underutilization due to a lack of demand, the NGM reports in its commentary.
One of Europe’s largest car manufacturers, Germany’s Volkswagen, is planning layoffs. At the same time, Stellantis, the Netherlands-headquartered super group of 14 iconic automotive brands from France, Italy, the United Kingdom and the United States, saw sales fall by 25% in November.
This turbulent international situation, as well as the harmful effects of the war in Ukraine, will inevitably ripple through and restrain the performance of the export-driven Hungarian economy and industry, according to the ministry. Although the government’s goal is for GDP to grow by more than 3% next year, and industrial production would play a significant role in this, analysts are far from being as optimistic.
After the downturn in September, the overall picture for the Hungarian industry improved in October, which was a positive surprise. Still, one swallow does not make a summer, ING Bank analysts wrote in a comment following the KSH release. The improvement was encouraging, and indeed, the monthly growth rate was unusually high, but on an annual basis, there was still a significant gap: a calendar-adjusted decline of 3.1%, they reminded.
It is also telling that industrial production volumes are still 2.6% behind in terms of average monthly output on the figures from 2021. In other words, the October improvement alone has not yet led to a breakthrough. Moreover, over the past three years, Hungarian industry has had some good months, but these have failed to break the negative trend.
“Detailed data is still to come, but the preliminary release from the KSH shows a similar industrial structure in some respects to what we have seen in recent months. And that is precisely why it is more likely that October’s improvement is not necessarily a turnaround in trends,” the ING Bank analysts said.
“The two main industrial sectors (transport equipment and electrical machinery) are still in decline. What is changing, however, is that the other two major segments, electronics and food, have been able to expand. Overall, the KSH also indicated that production volumes expanded in most sub-sectors,” they added.
Péter Kiss, investment director of Amundi Fund Management, commented that there was finally some good news among the gloomy data. It seems this is not only a Hungarian phenomenon; Polish industrial production also showed improvement. Even so, far-reaching conclusions about a future rebound cannot be drawn from this.
German industry continues to weaken (-4.5% on a yearly basis, -1% on the monthly data), meaning that Hungary’s primary export market does not indicate the kind of turnaround that could lay the foundation for sustained growth. These figures will not cause a profound market shift but may be worth paying attention to in the coming months, Kiss reckons.
The monthly expansion may be due, on the one hand, to Audi’s contract manufacturing in Győr, some 120 km west of Budapest by road, which began at the end of September and sees the assembly of the Spanish Cupra brand, like Audi part of the VW Group, partly taken over by the Hungarian unit. On the other hand, taking into account the detailed data for September, a more serious, positive shift may have been realized in the field of computer and electronic products production on a monthly basis, summarized János Nagy, a macroeconomic analyst at Erste Bank.
He does not consider the short-term outlook to be favorable but believes that “in the medium term, we can perhaps be optimistic: the significant capacity expansions entering production, mainly in the automotive industry and in the field of battery production, may result in a substantial recovery in output and larger volumes starting from the second half of next year, but their positive growth effect may only appear from 2026.
Based on the October data, it is too early to announce an industrial turnaround. German industrial production continues to show the sector is suffering, and until there is a turnaround, a lasting recovery is unlikely in Hungary. Indeed, the latest German industrial data again came as a significant negative surprise. In addition, the recent wave of factory closures and layoffs in the automotive and supplier sectors does not bode well for the short-term outlook, ING analysts confirm.
This article was first published in the Budapest Business Journal print issue of December 13, 2024.
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