Tim Gosling in Prague -

Shrugging off manufacturing data suggesting growing orders for the past four months, Hungarian industrial production plummeted in June, to leave second-quarter output 0.4% lower than in the first three months of the year, according to preliminary estimates from the statistics office. The result suggests the country is likely to seal its return to recession when GDP data for April-June is published later this month.

Hungary's industrial production data has proved highly erratic in recent months, but with the Purchasing Managers' Index (PMI) in positive territory for a fourth month in a row in June and a new Daimler plant in Kecszemet providing a further boost, the market was clearly justified in anticipating strong industrial production in June to follow up May's 3.5% expansion. The consensus in Bloomberg's survey was for a 2.2% gain month on month.

"The negative monthly performance can partly be seen as a correction of the good May monthly figure," analysts at Erste Group Bank said. "However, we think that the monthly performance should have been helped by the production at Daimler's plant, to a greater extent. The CSO said that there were two segments of industry that produce tangible growth: car manufacturing and the food industry, both thanks to exports, while other segments were stagnating or shrinking."

While the positive take on the data could be to assume that it will help nudge Budapest closer to concluding its long-winded bailout talks with the IMF and EU, markets took the news negatively, with the forint weakening for the first time in three days, according to Bloomberg.

That likely reflects the probability that Hungary will enter technical recession in the second quarter, which will only put a larger gap between the two sides at the negotiation table over the realism of the government's budgetary figures.

Recording a GDP contraction of 1.3% in the first quarter of 2012, the country escaped dropping into recession by the skin of its teeth, with revised figures for the fourth quarter of last year coming in flat. Erste analysts point out that the statistics office "added that industrial output in [the second quarter] was 0.4% below the first quarter. This suggests that the performance of industry failed to contribute positively to GDP growth as well in {the second quarter]."