Data from the Central Statistics Office shows that Hungarian industrial output fell by 36.8 percent year-on-year in April, but the fact that the Hungarian automotive industry weathered the coronavirus pandemic better than almost any other European country, indicates that a fast V-shaped recovery could begin in May, according to analysts from UniCredit Bank, Erste Bank and Danube Capital who were interviewed by economics portal novekedes.hu.
“With the reopening of the automotive factories in May, industrial production could jump back,” one of the analysts said. “The end of the restrictive measures and the reopening of the car dealerships also point towards a future normalization of demand.”
For the time being, the interviewed analysts did not substantially modify their full-year Hungarian GDP growth forecasts, but an important condition for this is that the damage to supply chains we see now is only temporary or the epidemic situation does not deteriorate again, which means the downside growth risks are therefore very strong.
There are a number of concerns for the export-oriented Hungary that still remain.
“On the supply side, considering the Hungarian economy is deeply integrated into global processes, the consequences of the epidemic — whether the virus appears in Hungary or not — could lead to a serious decline in performance among economic agents,” said Ágnes Halász, senior analyst at UniCredit Bank. “According to the latest available data, domestic producer consumption accounted for 30 percent and exports for 83 percent. And 35 percent of total domestic output was exported.”
The hardest hit sector, however, was tourism. After a 65 percent reduction in guest bookings in March, April saw a 97 percent fall. The border closures meant that foreign tourism practically disappeared, and the crisis in this sector will probably be followed by a slower recovery than in manufacturing, as some restrictive measures remain in place.
The silver lining of this particular cloud is that with many Hungarians having had renounced their plans for vacations overseas, domestic tourist destinations could see a surge in local tourism.
Retail trade fell by 10 percent year-on-year in April, but the decline here was only slightly more than half of the 18 percent European Union average and the government’s economic protective measures will probably lead to a swift recovery. Hungary has put in place a six-month grace period on commercial loans to private individuals and a state support scheme for part-time employment, meaning that the percentage of those who lost their jobs and have reached the end of their savings is significantly lower than in Western Europe.
Unemployment in Hungary rose to 3.8 percent in April, but that is only slightly more than half of the 6.6 percent European Union average and the sixth lowest among the 27 member states. With the notable exception of Slovakia (6.8 percent), the other Visegrád member states also fared better than most, with Czechia in fact posting the lowest figure (2.1 percent) in April, followed by Poland with 2.9 percent.
After last year’s 21.7 percent growth, the 20 percent decline in construction was to be expected. It also coincided with the end of a preferential VAT on new homes,, but the government’s recent announcement of preferential tax for brownfield urban developments means that this sector will probably also see a fast recovery, the analysis shows.
Title image: Automated assembly line at the Suzuki plant in Esztergom, northern Hungary. (source: suzuki.hu)