The volume of industrial production in November 2024 lagged by 4.2%, while that based on working-day adjusted data declined by 2.9%, year-on-year. According to seasonally and working-day adjusted data, industrial output was 1.6% lower than in October 2024, fresh data released by the Central Statistical Office (KSH) shows.
Production volume fell in November 2024 in the great majority of the manufacturing subsections. Output grew only in three subsections and was at its highest rate in the manufacture of coke and refined petroleum products. In the first 11 months of the year, industrial production was 3.9% lower than in the same period of 2023.
This is particularly disappointing news given that, one month earlier in October, industry had shown some faint signs of life, falling by 3.1% annually but increasing significantly, by 2%, on a monthly basis.
The November industrial data suggests that the Hungarian economy’s mainstay is still struggling, which will also impact the GDP figures due at the end of the month. The bigger problem is that the outlook is still gloomy, with orders from the vitally critical German factories falling dramatically at the end of last year.
Destatis, the German statistical agency, announced recently that orders from German factories fell by 5.4% in November, significantly worse than the 1.5% decline reported in October. This is unfavorable news from the point of view of the local economy, but it follows a trend; since the beginning of 2024, the performance of the Hungarian industry has been pulled back by weak German demand. This was most evident in the field of vehicle and battery production.
The question for 2025 is whether new industrial capacities entering production, including the Hungarian factories of BMW, BYD and CATL, will be able to compensate for the decline caused by weak external demand.
“The short-term outlook is not favorable: the vast majority of indices measuring the sentiment of economic actors in the eurozone and within it, Germany, have been stagnant for a year, and in fact, in December, they showed a consistent deterioration compared to the situation in November,” Erste Bank analyst János Nagy said in a comment.
“In parallel, the process of electromobility, which is vital for our country, has also slowed down massively, and there are no signs of an upturn in the coming months,” he added.
According to Nagy, one can perhaps be optimistic in the medium term: 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 in larger volumes, starting from the second half of the year.
Although huge volumes are planned, the shadow of the weak external economy gives reason for only moderate optimism this year. As things stand, the positive growth effect of the capacity expansions may appear mainly from 2026, according to Nagy.
The outlook is negative because German industry still shows no signs of a lasting recovery, agrees Dániel Molnár, senior macroeconomics analyst at Makronóm Intézet. He added that a turnaround in German industry could be expected from the second half of the year, but this required a reduction in political uncertainty in Hungary’s most important foreign market, a federal general election is due on Feb. 23, and a positive turn in economic policy.
“Looking ahead, however, an upturn in industry can be expected. Retail sales are gradually picking up, while government programs starting this year may create demand for broad segments of the manufacturing industry through the construction boom, which may be further supported by improved external demand,” Molnár says.
“In addition, large-scale investments (BMW, BYD, CATL) are gradually starting to bear fruit this year, and although they will only reach their capacities in the longer term, they may boost industrial production and exports and thus GDP this year,” he adds.
The KSH also published inflation data for December and for the whole of 2024. December produced the worst monthly figure last year. Prices were 0.5% higher than the previous month. Following a 3.7% year-on-year increase in November, consumer prices rose by an average of 4.6% in December.
“This was in line with our expectations, but higher than the market consensus, which was 4.4%,” analysts at MBH Bank wrote in a note following the release of the data. The experts emphasize that annual core inflation rose from 4.4% to 4.7% in December, slightly higher than they had calculated, which indicates increasing inflationary pressures.
The December monthly figure completes the picture for 2024: last year, prices rose by an average of 3.7% compared to 2023.
“One of the important reasons for the increase in prices from November to December was the further increase in food prices, but this rate has already slowed down compared to previous months. The weakening of the forint is having an impact, and this has partly filtered through to the prices of durable consumer goods,” says ING Bank analyst Péter Virovácz.
For 2024 as a whole, the analyst says that the 3.7% figure is more favorable than expectations at the beginning of the year and is also a significant improvement compared to 2023.
According to ING’s latest forecast, inflation could be around 4.2% in 2025, meaning the average rate of price increases could accelerate compared to last year.
This article was first published in the Budapest Business Journal print issue of January 24, 2025.
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