Hungary: Industry remains resilient

We have mixed feelings regarding the incoming industrial production data. It's an exaggeration to say that production was remarkable in June. The 0.3% month-on-month drop is far from strong but it was better than the market consensus (though lower than our forecast). And if we look at today’s German industrial data release, we see a much more drastic drop in production there. In the meantime, we know that supply chains continue to show severe disruption, so overall, Hungarian industry proved to be quite resilient in June. Due to last year’s extremely low base, annual growth came in at 22%, based on the unadjusted time series.

Based on the preliminary data release, an expansion was observed in all sub-sectors, although some sectors showed a significant slowdown compared to the performance of the previous month. Unsurprisingly, the automotive industry has slowed down the most, as this sector is suffering more from shortages of inputs and the fragmentation of supply chains.

For the past three months on average, Hungarian industry improved (in terms of the volume of production) compared to the previous quarter, by roughly 0.6% based on seasonally-adjusted data. Given the retail sales data published earlier this week, we can say that the Hungarian economy performed quite well in the second quarter of 2021. According to our forecast, it could even repeat the 2% quarter-on-quarter growth seen in 1Q21.

As for the near-term, until supply chain disruptions have been resolved, we see sustained but moderated growth. The main reason behind the expected continuous improvement is the new production capacity in battery factories. And due to the dynamic expansion in global demand, the level of orders may continue to grow, though impeded production capacity means we can expect longer delivery times. Issues with capacity utilisation are more and more visible, as 41% of companies are now complaining about an insufficient number of workers and 31% see equipment and material shortages as factors limiting production.