Weak industrial output number in December

HUNGARY - In Brief 06 Feb 2020 by Istvan Racz

---

The effectiveness of the MNB's most recent efforts to halt the forint's weak trend against the euro may be undercut by an unusually weak industrial output number, which was reported for December earlier today. Output was down by 3.8% mom on sda basis, implying a 3.4% yoy reduction of output in December, the first negative yoy growth figure since October 2016. Clearly, this setback originated from export sales, as the car industry's performance dropped significantly, whereas the production of computers, electronic and optical equipment expanded at a slower rate than in previous months.At the same time, continued robust expansion was reported from retail sales, up by 6.2% yoy in December, unchanged from the previous month, most probably supported by rapid wage growth, which accelerated to 10.2% yoy in real terms (13.9% yoy in nominal terms) in November. All this read together points to a prospective weakening of the current account or more inflation if the MNB allows the forint to weaken further, in an effort to protect domestic output growth.As we saw earlier this weak, the MNB is actually trying to stop the forint's slide against the euro by a small tightening of liquidity through FX swaps, as a 4.5% yoy weakening of the currency in EURHUF terms in January may have already added to existing inflationary pressures. However, knowing the well-known heavy bias of the MNB to maintain high domestic output growth, investors might think that the MNB's resolve to prop up the forint could not be particularly strong if the weaker industrial output data were combined with the prospect of further growth risks associated with the new coronavirus situation.This may have contributed t...