Manufacturing PMI at 29.1, EURHUF at 369.4, the MNB announced major tightening

HUNGARY - In Brief 01 Apr 2020 by Istvan Racz

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The manufacturing PMI for March was announced at 29.1, an unprecedented and extremely big drop from 50.1 in February. This pointed to the fact that currently, close to the whole of the domestic car industry has been closed down, including also tyre producers and the related parts of plastics, metallurgy and electronics. Car manufacturing represents about 30% of total industrial output directly, but this goes up to close to half of the total if the attached branches (the ones mentioned above) are also included.One key problem is the lack of demand, as hardly anyone is buying a new car in the state of an epidemic. Another one is a major disruption to cross-border transportation, to which the car industry is heavily exposed. This is due to increased border closures: e.g. Hungarian truck drivers returning to Hungary are subject to a two-week mandatory lockdown. These measures are common in the CEE, with a view to protecting the relatively lowly infected region from the mass imports of Covid-19 from Western Europe. This problem also affects the whole of the industrial sector, as about 60% of total output is usually exported. The production of electronic equipment, the second largest branch of manufacturing, is also in trouble, due to the lack of orders and also a shortage of imported components, many of them usually coming from China.Mainly in response to the PMI figure, the forint fell today, to a new historic low of 369.4, where it was stopped by the MNB announcing a 1-week deposit tender (to be held once a week, first time tomorrow), the Bank paying 0.9% interest on the instrument. Of course, this represents a major interest rate hike compared to the previous 0.4-0.5%, l...