The already feeble performance of Hungary's industrial sector crumpled in March as output dropped 4.6%, an initial estimate released by statistics office KSH on May 6 showed.
Industrial production had surprised with its weak start to 2016, but following a 6.3% annual increase in February, it was hoped that the rot would stop as an extended turn of the year slowdown faded. However, the poor data has instead turned painful.
Output fell 1.1% m/m in adjusted data in March. That marked the fifth straight monthly decline in a row, extending speculation that rather than a Xmas hangover, Hungarian industry may be feeling the effects of the stuttering Eurozone recovery, rocky emerging markets, and reduced absorption of EU funds.
Similarly, adjusted annual output declined 2.4% y/y, following a 1.8% y/y increase in February and 2.2% increase in January. Figures from the first three months of the year came as a huge disappointment compared with recent results and expectations, following a 6.8% increase in output in December.
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.
Although analysts had expected the data for March would be less than impressive, the extent of the drop is shocking. Gergely Suppan at Takarekbank notes that the decrease primarily reflects the drop in production of the automotive sector at the beginning of the year.
Carmking drove the impressive growth in industrial output last year thanks to new investment. While the end of the major expansions by the likes of Suzuki are now complete, suggesting the sector will struggle to keep up the torrid pace of output growth this year, the reasons for the slump are hard to pinpoint, especially as suppliers continue to announce fresh investment. The ability of the auto segment to unbalance the entire industrial sector is becoming an issue Budapest needs to address.
At the same time, David Varga, analyst at K&H Bank notes that the reduced absorption capacity of Hungary’s export partners might also have had a negative impact on the country’s industrial production. After 18 months of increase, Hungarian exports dropped 3.4% y/y in March.
KSH said that the previous year’s high base also contributed to the fall in industrial output. The statistics office will publish detailed results on May 12.