Hungary's industrial output fell at a faster pace than anticipated, down 5.8% y/y (chart) in November, accelerating from a 3.2% decline in the previous month, according to data released by the Central Statistics Office (KSH) on January 9.

The adjusted annualised data showed a 5.6% decline and the monthly contraction was 2.3%.

The weakness in the European economy has hurt the country’s export-oriented industry and the sobering data came amid rising BMI figures for the month, according to analysts.

Output of most manufacturing sector branches declined, except for the coke and refined petroleum products and the chemicals and chemical products branches, KSH said.

Hungary’s industry contracted 4.8% y/y in the first 11 months. Excluding 2020, the sector’s contribution to GDP will be negative for the first time since 2012.

Hungary’s industry remains on a downward trend and production has fallen back to post COVID-19 crisis levels recorded at the end of 2020 and the beginning of 2021.

According to ING Bank, the weaker-than-expected performance was the result of subdued export demand and the most influential electrical equipment (battery production) and automotive sectors also had a weak month.

Industrial sectors producing for the domestic market continued to perform poorly in the absence of new orders.

The shutdown of production at Nitrognemuvek, the country’s sole fertiliser plant, has also had a negative impact on the sector, which is expected to contract 5-6% this year following a 6.1% expansion in 2022.

Hence, the sector will have a negative impact on the GDP for the full-year and in Q4 as well.

In the medium-long run, new production capacities in the automotive and battery manufacturing sectors could bolster a recovery of output, contingent upon external demand.

The National Economy Ministry said subsidised lending programmes could expand production capacities of local businesses. The government continues to provide cheap funding to companies in the manufacturing and food industry to ease the impact of rising borrowing costs, but according to the MNB, it is not the lack of liquidity but the unfavourable market environment that were to blame for the steep fall in investments in 2023. In fact, the liquid asset of Hungarian companies stood at 30-35% of GDP.

KSH will release detailed data on output of all industrial sector branches on January 12.