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Hungary IP slump may signal deeper recession, says City

The severe slump in Hungary’s industrial output may signal a deeper-than-expected recession next year, London-based emerging markets analysts said on Friday.  

Manufacturing production in October was down 7.2% on the same month last year, a much sharper-than-expected year-on-year contraction. Neil Shearing, Central European strategist at Capital Economics in London told Econews the number reflects “how bad things have got” in Hungary’s major export markets such as Germany. It may also be a reflection of the fact that “Hungarians have stopped buying as confidence has taken a hit”.

Asked if the slump in the industrial output may mean the Hungarian economy bottoming out, and then starting to recover, earlier than expected, Shearing said it is more likely to mean that the recession will be deeper than initially anticipated.

He said he currently expects a 1.5% retreat in Hungary’s GDP next year, but the actual downturn may be even deeper than that. It was the euro zone that had prevented Hungary from going into recession during the last fiscal tightening, but “that’s not going to happen this time”, he added. Shearing said he saw Hungary’s central bank (MNB) lowering its base rate to 7% next year.

Juliet Sampson, Central European economist at HSBC in London, told Econews that although industrial production on its own does not determine whether the economy is in recession, it is “very likely” that Hungary would not be able to avoid a recession next year. She said she expects the MNB to reverse its 3.00ppt rate hike “relatively quickly”, and that she also saw scope for considerable easing after that. (MTI-Eco)