Very poor industry and retail sales data in February

HUNGARY - In Brief 06 Apr 2023 by Istvan Racz

---

Industrial output fell 4.5% yoy in February, after -3% yoy in January. In Q4 2022, when GDP fell by 0.4% qoq (and expanded by 0.8% yoy), industrial output still grew by 3.9% yoy. The government and the MNB have been expecting positive GDP growth this year on hopes of growing net exports, which in turn is heavily dependent on the strength of the industrial sector, the leading and even decisive contributor to merchandise exports. Note: Yoy changes in percent; Sources: KSH, MNB Retail sales dropped 8.5% yoy in February, after falling 3.7% yoy in January. In Q4 2022, retail sales decreased by 1.6% yoy. The increasingly steep setback has followed a very similar trend reported for real wages (see chart below). In a society where only about 30% of families have any material amount of financial savings, this kind of strong link between wages and consumer demand is just natural.  Note: in real terms, yoy changes in percent; Source: KSH All this is bad news for those who believe that the current strong trend of the forint is sustainable. The MNB keeps insisting on the strong forint, and the high sterilisation rate which is behind it, because that is the main instrument by which it can provoke rapid disinflation, meeting its current unusually strong political mandate to do so. But the strength of that political mandate does not automatically mean that the highest political level is ready to accept any outcome on GDP and household consumption this year. Please, note that the current implicit exchange rate policy is becoming progressively tighter and tighter. In March, the yoy increase by the monthly average EURHUF rate slowed to 2.1%, after 7.8% yoy in February, 10.3% yoy in Janua...