After two months of contraction, Hungary’s industrial growth expanded by 3.8% in December on a monthly basis, lifted mainly by the performance of the vehicle industry, the Central Statistics Office (KSH) said in a preliminary reading.

Output on an annual basis grew 2.0% year-on-year (chart) in the last month, picking up from 0.6% and by 5.7% when adjusted for working days.

KSH said the output of the automotive industry, Hungary's biggest manufacturing branch, "grew significantly", while the output of "most" other branches fell, including the computer, electronics, and optical equipment segment and the food, drinks and tobacco products segment. Detailed data will be released on February 13.

For the full year, output climbed 5.8%, slowing from 9.5% in 2021.

In December, Hungary’s industry made up for the contraction it had accumulated over the previous two months and production levels returned to near September levels, ING Bank analyst Peter Virovacz said.

The blip at the start of 4Q was mainly the result of a slump in the production of energy-intensive sectors as businesses faced a multifold increase in energy prices. A temporary halt at MOL’s Hungarian refinery also dented growth, according to Magyar Bankholding analyst Gergely Suppan.

The vehicle sector proved resilient in the wake of war and the energy crisis through 2022. The easing of supply chain problems and retreating gas and electricity prices have significantly improved their outlook, according to the note. This is reinforced by a strong order backlog, as the order book of the industry rose 20% y/y in November and by 26% for the automotive sector. 

The launch of new capacities mainly in the battery and automotive, food, chemicals and defence industries is expected to lend support to the sector’s growth. The vehicle sector remains a key investment target. CATL, SK Innovation, Samsung SDI, BMW  are expanding their EV battery businesses in Hungary, while the build-up of defence industrial capacities will press on. 

Industrial production could pick up significantly from 2024 onwards as new capacity is ramped up, the analyst believes.