The difficulty for the vital carmaking sector to stabilize was yet again the main culprit as Hungarian industry extended its slump at the start of the third quarter, data from the statistics office KSH showed on September 14. Overall output dropped 4.7% y/y in July, confirming a flash estimate from a week earlier.

Following a surprisingly extended turn of the year slowdown, Hungary’s industrial sector had seemed to return to form in April and May, in unadjusted annual terms at least. However, as June showed with a 0.3% contraction, the ill effects of the auto sector’s struggle to stabilize has been evident thoughout the year in monthly industrial production data.

The production of transport equipment – representing 31% of Hungarian manufacturing output – declined 8.5% y/y. The manufacture of motor vehicles dropped 12.8%, while output of parts and accessories dropped 2.4%.

Other data reflected recent reports that Hungary’s impressive trade surplus run is fading. The volume of industrial export sales declined 5.0% in July. Overseas sales of transport equipment, representing almost 40% of manufacturing exports, dropped 6.1%.

Industrial production fell 0.1% in adjusted terms, with July having two fewer working days than in the previous year. In monthly terms, output fell 0.4%.

Following the apparent recovery in April-May, the sector dropped back into contraction in June with a reverse of 2.4% m/m. The July result only deepens the worries over the performance of Hungarian industry and its effect on overall economic growth. It leaves output just 1.3% higher after the first seven months of the year.

Carmaking fueled the impressive growth in industrial output last year. However, it is becoming clearer that the potential of the auto segment to unbalance the entire industrial sector is now an issue for Budapest. 

While the slowdown at the beginning of the year contributed to feeble GDP growth in the first three months of 2016, the annual increase in Hungary’s industrial output in April and May helped to push second-quarter GDP growth to a 2.6% annual increase. However, the effects of the auto sector’s struggle to stabilize have been evident throughout the year in monthly industrial production data, raising concerns over the longer-term recovery of economic growth.

KSH confirmed the second-quarter GDP growth in a second estimate on September 6, noting, however, that the first half of the year delivered expansion of just 1.4% y/y. The detailed data showed that thanks to the April-May bounce, industry was a major contributor to the headline figure. The poor start to the third quarter therefore bodes ill for the central bank’s full-year target for economic expansion of 2.8%.