New BMW assembly plant to be beneficial for growth, less so for inflation

HUNGARY - In Brief 01 Aug 2018 by Istvan Racz

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BMW has just announced its intention to build a new assembly plant in Eastern Hungary. The location of this plant will be Debrecen, the country's second largest settlement (203 thousand inhabitants), the expected capacity is 150 thousand cars per year, and the unit would employ over 1000 people when ready. The time-frame of the project remains unclear for the time being, but based on the experience collected from the stories of other car producers operating in Hungary (Audi, Mercedes, Suzuki and Opel), local analysts expect the assembly plant to be pulled up from nothing in a matter of 3-4 years. Should it be the more likely four years eventually, the positive impact of the project on GDP growth could be 0.2 percentage points under the construction period, with probably less in the initial year and a bit more later on.By the way, BMW already buys components worth over EUR1bn a year from Hungary, the indirect contribution to GDP potentially reaching 0.2-0.3%.The selection of the plant's location is in part driven by the fact that from the point of view of the car industry, Debrecen is in the middle of a 'hole', a region where no similar activity can be found currently. This should make hiring the necessary staff easier, yet that can be easily the Achilles heel of the project, even though the new unit is expected to be highly automated. Anyway, the project's impact on domestic price stability is expected to be negative, because of its expected effect on wages and construction industry producer prices.