Hungarian industrial production showed signs of a serious rebound as it rose to a 17-month high of 12.8% y/y in March, according to data reported by statistics office KSH on May 5.

The preliminary reading, which still showed a robust 9.4% gain in activity when adjusted for working days, sits well above expectations and suggests the quickest growth since October 2015. Hungarian industry struggled throughout 2016, the sector weighed down by an erratic performance in the vital auto industry and deep lull in investment.

Results in the first two months of the year were positive, but less than spectacular. The market will now be watching closely to see if Hungarian industry can persist in a recovery trend, or will follow the volatile pattern seen last year.

The robust expansion in the third month of 2017 is viewed as a favourable sign ahead of first quarter GDP growth results that are due on May 16. Takarekbank forecasts an expansion of 3.5% y/y, well above the disappointing 1.6% recorded in October-December, and the 2% full-year figure for last year.

Strong PMI readings and rising business confidence in the manufacturing sector - a key driver of the wider sector - foreshadowed the impressive numbers, but it has taken some time for output to catch up with that soft data. Low base figures, and robust export sales of electronic and manufacturing products boosted output in March, alongside the automotive sector, which accounts for around a third of overall industrial production.

After a modest 0.9% growth in 2016, Hungary's industrial output could accelerate to 5.5% in 2017, suggests Takarekbank. Growth is expected to continue to accelerate in 2018, when Audi and Mercedes will beef up capacities to add new models at their local plants.