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Fall to bring good news in industrial production

After declining for three consecutive months, industrial production finally picked up in August. Although the new trend is not yet overly convincing, analysts expect to see an upturn in the autumn. In the meantime, inflation is back in positive territory again.

Although raw data shows a two-digit rise in Hungary’s industrial production on a year-on-year basis, when looking at working day-adjusted figures output grew only 3.5% in August. The raw data, a 11.1% increase, is high because this August we saw three more working days than in 2015. Month-on-month data showed a 1.6% increase, which follows a three-month decline. The improvement in August’s industrial figures is mainly due to a livening in the automotive sector, which showed a 16.6% increase from last year, and of the 13 sub-sectors of the manufacturing sector, 12 picked up in the last month of the summer. The machinery and pharmaceutical sectors also performed outstandingly well in August.

Fall usually brings good news for the industrial sector, and both the Hungarian purchasing manager index (which rose to 57 in September from 51.7 in August) and German manufacturing sector data suggest that we will see the positive tendency in industrial performance continue and even further pick up in the upcoming months. Total new orders in the manufacturing sector grew by 15.4% in August on a yearly basis, of which domestic orders grew by 21.9%, and export orders were up by 14.3%. This again indicates that the performance of Hungary’s industry will further improve in the fall.

The latest foreign trade data showed a mixed picture: exports grew by 13% year-on-year in euro terms, and imports grew by 11%. The growth rates both for imports and exports have accelerated. Exports were up 3% and imports rose by 1.4% in January-August. Having three more working days this August compared to 2015 also had a positive impact on the figures. However, when looking at seasonally-adjusted data of the past five months, it turns out that exports did not rise significantly during that period.

Eurostat published August industrial production data for the European Union recently, showing that Hungary performed above average both when it comes to month-on-month and year-on-year data. The EU28 countries produced 1.4% month-on-month growth on average, while the average increase from the same period of last year was 1.8% in the EU28. That compares to Hungary’s figures of 1.6% and 3.5%, respectively.

In the EU28, the increase of 1.8% is due to production of durable consumer goods rising by 4.6%, capital goods by 3.3%, intermediate goods by 1.9%, energy by 0.2% and non-durable consumer goods by 0.1%. The highest increases in industrial production were registered in Czech Republic (+7.7%), Slovenia (+5.9%) and Poland (+5.1%), and the largest decreases in Ireland (-8.5%), Sweden (-6.2%) and Malta (-3.9%).

The other much-awaited figure of the past two weeks was the consumer price index (CPI) for September. Central Statistical Office (KSH) data showed that inflation swung back in to positive territory in the first month of the fall, and rose 0.6% on a year-on-year basis, up from -0.1% in August. Alcoholic beverages and tobacco products saw the highest rise in prices. One of the reasons for the jump in CPI is the base effect, as oil prices nosedived in August-September last year, and this has dropped out from the index now. Oil prices started to increase this September, and the latest inflation figure reflects this rise. Inflation was also fueled slightly by a rise in the prices of food and services.

No significant pressure

Analysts still do not see significant inflationary pressure, although some say the data suggests a strong build-up. In September, core inflation rose to 1.4% on a year-on-year basis from 1.2% in August. “While this is still way below the central bank’s 3% medium-term target, our short-based indicator is already close to 2%,” Hungary’s business portal portfolio.hu wrote.

More good news came from the Ministry for National Economy (NGM) recently: Hungary posted a HUF 271.6 billion general government surplus in September, on a cash flow basis and excluding local governments. It is not unknown for the budget to post a surplus in September, but such a high figure usually occurs only in the last few months of the year. The NGM said the reason for this September’s extraordinary data is that last year, the state paid the European Union funds to tender winners, but the EU has only now made the actual transfers to the Hungarian state. As a result, the accumulated deficit of the central sub-sector of the state budget fell to a record low level of HUF 2.4 bln in September. This figure has been unprecedented for some 15 years, the NGM wrote in a note.

The full-year ESA deficit is set to be better than formerly anticipated; therefore, the government officially announced that it has modified its fiscal target from 2% to 1.7 % of GDP. This means an elbow-room of approximately HUF 100 bln in the budget; the question is, how will the government use it in the last three months of the year?

Numbers to watch in the coming weeks

We’ll find out on October 17 whether the numerous government measures introduced lately – such as the subsidized home loans for families – have finally had a positive effect on the construction industry. Earnings for the January-August period will come out on October 19, and we’ll hopefully learn on October 25 that the 38-month increase in Hungary’s retail sector is still continuing. Employment and unemployment figures for the July-September period will be released on October 27.