Industrial output returned to a downward trend in March

HUNGARY - In Brief 08 May 2024 by Istvan Racz

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Moving in a direction opposite to retail sales, industrial output fell by 3% mom, 2.9% yoy (volume terms, sda basis) in March. Here is the fixed-base chart (Dec 2010 = 100, KSH data): The recent downtrend of the industrial sector appears to reflect Europe's industrial weakness, as the same Hungarian series compared to Euro Area industrial output data suggests (Dec 2015 = 100, Euro Area data from Eurostat):  This is quite logical, of course, as the local industrial sector is heavily export driven, with over 60% of output being exported, predominantly to the EU. The March data also means that output fell by 0.2% qoq, 1.5% yoy in Q1. Question: how is this consistent with the recently published preliminary Q1 GDP data (+0.8% qoq, +1.7% yoy)? Answer: well, it easily may be consistent. In Q1 2023, industrial gross output dropped by 4.5% yoy, industrial value added fell by 3.5% yoy, and GDP decreased by 1.1% yoy only, due to more strength found in agriculture and services. Especially services, which represent some two-thirds of the economy, may have been stronger then industry again early this year, not least as this time, the performance of trade and transportation services must have strengthened together with the upturn of retail sales (though pulled downwards by decreasing export/import volumes). In addition, industrial value added may have been stronger than gross output once again, if intermediate consumption dropped due to less use of energy, because of the warm winter. Another remark is that the combination of strengthening consumer demand and weak industry, if continued, should eventually lead to a deteriorating trade balance and current account. But fortunately, the ...