In Hungary industry recovers to 5.3% y/y growth in April

Industrial output increased by 5.3% y/y in April and recovered from the 4.6% contraction in the previous month, the statistical office (KSH) confirmed the preliminary industrial figures. Output expanded by 5.4% m/m in seasonally-adjusted terms and completely compensated for the losses in the previous several months. The data showed that strong external demand supported the recovery in industrial activity. Export sales of the industry were up by 6.2% y/y during the month, which is still somewhat lower than the usual average performance since early 2015. We think that the earlier weakness in exports was rather on account of structural problems in some local car producers rather than a decline in external demand. The industrial output data for May should show whether the crisis in the domestic automotive industry has been fully overcome. A continued solid growth in May would support the expectations of local authorities for a more sustained pick-up in GDP growth in Q2 and the next quarters, in our opinion.

Output of the transport equipment sector rose by 7.0% y/y in April after the declines in January and March. Its growth was weaker than usual, in our opinion reflecting partly high base effects from the previous year when the local Suzuki plant introduced a new version of the popular Vitara model. We believe that similar base effects will keep growth in the automotive industry subdued even in case it fully overcomes the recent troubles. The second largest industrial branch of electronic equipment also recovered to a 15.0% y/y growth because of higher consumer electronics and communication equipment production. Both domestic and external demand contributed for the recovery in the branch. The mid-sized pharmaceutical branch improved output activity in April but we expect its performance to remain volatile after news that the local plant of drug maker Teva has reduced operations due to regulatory problems on the US market.

New industrial orders rose by 8.1% y/y in April after the 6.9% y/y decline for the previous month. The improvement was both on account of domestic and external orders with the recovery being more pronounced in the case of external demand. New export orders were up by 8.1% y/y while new domestic orders rose by 7.9% y/y.

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