Hungary - Economic update February 2019

Industrial growth strong for now

Hungarian industrial production has been decoupling from that of its regional peers, growing by 5.4% yoy in December (figure HU1). As a result, its contribution to GDP growth might remain roughly the same in 4Q18 as it was in 3Q18 (0.6%pt). Electronic and optical devices represented the highest growth, but vehicle production was also up. The December figure also implies that industrial output increased by 3.6% yoy in 2018 on average, a deceleration compared to 2017 (+4.6% yoy). The deteriorating global outlook might be compensated by some new production capacity in 2019. Hence, we expect industrial production growth in 2019 to be roughly on par with 2018.

The relatively weaker industrial developments globally are, however, reflected in the trade balance. The trade surplus moderated from EUR 8.1 billion in 2017 to EUR 6 billion in 2018. Exports increased 4.3% yoy while imports were up by 6.9% yoy last year. Imports were boosted by investments and household consumption. As EU funds spending and wage increases will remain present in 2019 as well, import growth may remain strong this year. Hence, we expect the trade balance to deteriorate further and move below EUR 5 billion in 2019, which may push down the current account surplus as well (below 1% of GDP towards end 2019).

Figure HU1 – Hungarian industrial production remains strong, outperforming regional PEERs (% change year-on-year)

Source: KBC Economics based on Hungarian Central Statistical Office (2019)
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