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Tuesday, April 15, 2008

Hungary Industrial Output February 2008 (Provisional and Update)

Hungary's industrial output jumped by 13.2% year on year in February, according to unadjusted data, and was up 9.8% over February 2007 according to figures adjusted for working days, according to provisional data released by the Central StatisticOffice (KSH) earlier this morning. Output increased by a seasonally and working day adjusted 2.3% month on month (as compared with a 1.3% month on month increase in January). These are pretty healthy numbers, and confirm the picture presented in my last post about the trade balance. Everything now depends on the short term evolution of trade in the EU and on the path of the Hungarian (export sector) producer price index.

The KSH is scheduled to release detailed data on the industry on 15 April.

Eszter Gárgyán, from Citibank, Budapest - quoted in Portfolio Hungary - is pretty much to the point:

“The latest Euro Area economic indicators were surprisingly strong, suggesting that Hungary's main export partner is so far in good shape and that the effects of the US slow down and rising credit costs are limited. We expect a broader Euro Area weakness in the second half of the year, which is likely to limit the Hungarian growth recovery due to weaker net exports."

Hungary's main export partner is, of course, Germany:

We had German industrial production numbers yesterday, and output rose again in February, for its third monthly gain in as many months, as manufacturing output continued to hold up and unusually warm temperatures boosted construction. Output rose a seasonally adjusted 0.4 percent from January, when it gained 1.4 percent, the Economy Ministry in Berlin said today. Year on year total industrial production was up 6.1 percent when adjusted for the number of working days.

So German industry still seems to be holding up pretty well, and is busily working off the huge batch of orders which it built up during the fourth quarter of 2007 - and Hungary is following in close tandem. More than likely however we'll see a slowdown over the coming months as global demand is cooling, the euro remains strong and economies like Spain, Italy and the UK are now slowing visibly. As a possible early warning of this situation German factory orders fell 0.5 percent in February, a government report showed last week, and the International Monetary Fund has cut its 2008 outlook for economic growth in Germany to 1.4 percent from 1.5 percent. It will be interesting to watch how the decline in German orders reflects itself in orders in Hungary as we move forward.

Update 15 April 2008

Hungary's unadjusted industrial output growth was confirmed at 13.2% year on year in February by the KSH today, and was also confirmed at 9.8% yr/yr, when adjusted for working days.

Output increased by 2.3% month on month (vs. +1.1% in Jan), according to figures adjusted seasonally and by working days.This is now the fourth consecutive month that output has risen. While the year on year data (up to 13.2% from 6.1% in Januray) shows an upturn, order figures are still very disappointing.

Total new orders for industry were down 5.3% yr/yr in February as compared with a decline of only 2.5% in Jan. New exports orders fell 4.2% yr/yr (vs. + 0.8% yr/yr in Jan), and domestic orders slumped by 11.8% (vs. -11.9% in Jan). Total orders were down 2.7% yr/yr, against a dip of 9.2% in the previous month. Industrial output growth in the January-February period came to 9.7% yr/yr.

Exports sales in the industry were up 15.5% yr/yr in February, against +10.8% in Jan and +22.2% in Feb 07. While domestic sales came to a screeching halt in January (no yr/yr change detected), they grew by 6.4% in annual terms February, which compares with a 1.4% increase in Feb 07.

German Confidence Deteriorates

Some indication of why the order books in Hungary's German-dependent economy can be found in today's news that investor confidence in Germany fell in April for the first time since January on concern that faster inflation, a stronger euro and fallout on exports from the slowing economies in Italy and Spain will hurt company earnings. The ZEW Center for European Economic Research said its index of investor and analyst expectations declined to minus 40.7 from minus 32 in March. This was just above the 15-year low of minus 41.6 it in January.

The euro dropped more than half a cent to $1.5828 at 11:06 a.m. in Frankfurt after the report was released. The DAX index retreated as much as 25 points to an intra-day low of 6532.76. Germany's benchmark DAX share index has dropped 19 percent this year, the biggest decline among major European stock markets. While growth in Europe's largest economy is holding up, the outlook is now evidently deteriorating.

A third of medium-sized German companies are already finding it more difficult to get loans, the Creditreform agency said April 1. The cost of borrowing euros for three months rose to 4.75 percent yesterday, the highest level since Dec. 27.

Companies and consumers are also grappling with higher energy and food prices, which drove Germany's inflation rate to 3.2 percent last month. Crude oil prices have climbed 76 percent over the past year, reaching a record $112.48 today.

The International Monetary Fund last week cut its prediction for German economic growth this year to 1.4 percent from 1.6 percent. The IMF recommended the European Central Bank start cutting interest rates.

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