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Friday, March 07, 2008

Hungary Industrial Output January 2008

Hungary's industrial output grew by 6.6% y-o-y in January according to preliminary data from the statistics office. The growth rate was higher than the market consensus (5.8%) and surpassed December 5.3% data. Working day adjusted figures show a 1.3% m-o-m and 6.6% y-o-y rise.

These numbers are clearly better than expected, and a very slight silver lining on what is likely to be a very difficult day. On the other hand if we look at the annual growth rate chart we will see that the increase, while better than November and December, is still down on the rates of increase being achieved in earlier months.

However if we look at the seasonally and working day adjusted index levels we will see that November and December were indeed untypical months, and that to some extent the trend has now been recovered.(the January data is my own calculation, since KSH haven't yet released details, but a 1.3% increase over December doesn't need a mathematical genius to work out, although do remember these are all provisional data and industrial production is notoriously liable to revision as the months pass).

Untypical months then - or where they? Maybe it is worth thinking about the level of interlocking between the German and Hungarian economies as far as industrial output goes.

The strategic importance of the level of German economic activity for Hungarian exports should be evident from the chart I produce below which I have prepared from KSH data. What is not clear to me is the extent to which these products which go to Germany are subsequently processed for re-export (the Bazaar Economy hypothesis of Hans Werner Sinn).

Now what we do know is that German export activity has been slowing in recent months (the German economy due to its comparatively older aggregate population age is now an export driven economy in the way Hungary is about to become).

But we also know that things in January and especially February looked a little brighter in Germany (see this recent post on my Germany blog). It is important to note that "a little brighter" here really does mean a little brighter, since we should expect no dramatic turnaround in Germany, but could it be that Hungary is getting some of the uplift from this slight brightening. I certainly think it is an interesting hypothesis to entertain, and if this is the case, and if too the German economy now continues its way on its own version of Redetzky's downward march, then we cannot expect this recent recovery in Hungarian industrial activity to be anything other than temporary.

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