Hungary: Industry still strong, but it won’t last forever

The rollercoaster is still on so it hardly comes as a surprise that after an exceptionally strong September, the October performance was somewhat weaker. On a monthly basis, industrial production dropped 0.4%, while output rose by 6.4% year-on-year. This is still a strong performance by recent European standards and mainly fuelled by car making, electronics and the food industry. However, we can’t ignore the mounting signs of a significant slowdown ahead.

First of all, 4Q19 capacity utilisation dropped to 80.3%, the lowest since early 2017. The trend is also disturbing, as the four-quarter moving average is showing a sharp downward trend. Despite the recent capacity enhancements in car and electronics, other sectors are facing severe constraints. This could be the most valid explanation for the decoupling in PMI and industrial growth trends.

The former is signalling a major slowdown, while industrial growth is still doing fine. This could be the result of the fact that the large multinational manufacturers, which have the most significant weight in production, are able to produce more on recently-increased capacity, while mid- and low-level manufacturers are suffering and scaling back production. The stock of orders (as of September) is also pointing toward a slowdown, showing a 6.3% drop compared to a year ago.