Hungary’s Industrial Slump Signals Slow Recession Recovery

Hungary’s economic recovery is faltering as industrial output plunged and retail sales stagnated, raising concerns over the country’s ability to rebound from recession. The forint weakened against the euro, adding further pressure to the fragile recovery.

Industrial production fell by a workday-adjusted 6.4% in December compared to a year earlier, driven by a downturn in key manufacturing sectors, including automotive and electronics, according to Hungary’s Central Statistical Office (KSH). Meanwhile, retail sales grew by just 0.1%, marking the slowest pace in over a year.

The Ministry of National Economy (NGM) attributed the slump to Germany’s prolonged recession, which continues to weigh on Hungary’s export-driven industries. In a statement to the MTI news agency, the ministry highlighted that industrial output for 2024 declined by 4% from the previous year, with a 5.3% drop recorded in December.

“The performance of Hungarian industry remains under pressure due to Germany’s economic struggles, weak external demand, and the European Union’s broader competitiveness challenges,” the ministry said. Germany’s two-year recession and ongoing political and economic instability are disrupting supply chains, hurting Hungarian exports and industrial investments.

Despite the downturn, the ministry pointed to encouraging signs in domestic industries, citing growth in computer, electronics, optical, and food production in December. However, factories continue to operate at reduced capacity due to weak foreign demand.

Although Hungary officially exited recession in the fourth quarter, the latest data suggests the economy is far from regaining momentum. This poses a challenge for Prime Minister Viktor Orbán, who is looking to revive growth ahead of next year’s elections, as his ruling party faces a rising opposition movement.

The forint slipped 0.3% against the euro on Thursday, interrupting a rally that had pushed the currency to its strongest level in nearly three months a day earlier. The Hungarian currency lost 6.9% of its value against the euro in 2023, making it the worst performer among Central European emerging-market currencies.

“Short-term prospects for the industry remain weak,” Erste Bank analyst János Nagy said in a note to clients, though he noted that domestic consumption could gradually recover following December’s slowdown.

The Hungarian government has projected 3.4% GDP growth in 2024, banking on increased output from three major new factories - BMW, Chinese carmaker BYD, and battery giant CATL. However, analysts remain skeptical, warning that external risks could limit industrial expansion.

Meanwhile, retail sales fell 1.2% month-on-month in December on a seasonally adjusted basis. The KSH attributed the drop to consumers pulling forward holiday purchases to November, while the Economy Ministry noted that more Hungarians shopped abroad, reducing domestic retail revenues.

As the government pushes to jumpstart growth, weak industrial output and currency volatility threaten to derail its economic agenda, raising questions about Hungary’s ability to sustain a strong post-recession recovery.