Hungarian industry extended its slump at the start of the third quarter, as output dropped 4.7% y/y in July, data from statistics office KSH showed on September 6.

Following a surprisingly extended turn of the year slowdown, Hungary’s industry 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.

Industrial production fell 0.1% in adjusted terms, with July 2016 having two fewer working days than 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.

KSH will issue a detailed estimate on September 14. Carmaking drove 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 an extended turn of the year slowdown 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 Q2 GDP growth to a 2.6% annual increase. However, the ill 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’s 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%.