The already feeble performance of Hungary's industrial sector in 2016 crumpled in March, a detailed report released by statistics office KSH confirmed on May 12.
Following up its preliminary estimate, KSH reported that unadjusted industrial production did indeed drop 4.6% y/y and 1.1% m/m in the third month of the year. The poor data disappointed as it was hoped that following a fourth monthly reversal in February, the extended turn of the year slowdown would fade.
However, the result marked instead a fifth straight monthly decline, extending speculation that that rather than a Christmas hangover, Hungarian industry may be feeling the effects of the stuttering Eurozone recovery, rocky emerging markets, and reduced absorption of EU funds. The detailed new report illustrates the risks of Hungary's heavy dependence on the auto sector.
Adjusted annual output declined 2.4% y/y, following a 1.8% y/y increase in February. The two-year average is around 7%, and growth peaked at 12.7% in October. However, industrial production increased just 0.3% y/y in Q1 2016.
In its detailed second estimate, KSH noted that the manufacture of motor vehicles dropped a remarkable 14.4% y/y in March.
Carmaking drove impressive growth in industrial output last year. While major expansions by the likes of Suzuki are now complete, suggesting the sector will struggle to keep up the torrid pace of output growth, the reasons for the slump are hard to pinpoint, especially as suppliers continue to announce fresh investment. However, it is becoming clearer that the potential of carmaking to unbalance the entire industrial sector is an issue for Budapest.
However, carmaking was not the only segment to struggle in March. The output of the energy industry practically stagnated, increasing 0.2%, while the food sector declined 1.6%, mainly due to a decrease in export sales. After 18 months of increase, Hungarian exports dropped 3.4% y/y in March, while the volume of industrial export sales decreased by 4.8%.
"Industry output in Q1 ... [suggests] fairly downbeat GDP data," analysts at Raiffeisen Bank International warn. They forecast economic growth for the first quarter at just 1.8%, but retain an earlier 2.2% forecast for 2016 as a whole.