Bloomberg News

Hungary Industry Output Fell Most in 3 Years in November

January 08, 2013

Hungary’s industrial output plummeted the most in three years in November, exceeding economists’ forecasts and signaling the nation’s recession probably extended into the fourth quarter.

Production fell a workday-adjusted 6.9 percent in November from a year earlier, the steepest decline since the same month in 2009, and declined 0.1 percent from October, the statistics office in Budapest said today. Economists had predicted a 3.5 percent drop, according to the median of 10 estimates in a Bloomberg survey.

“This is definitely a negative surprise,” Zoltan Arokszallasi, a Budapest-based analyst at Erste Group Bank AG, said by phone. “Industrial exports and retail trade are both underperforming and the fourth quarter isn’t looking pretty.”

Hungary is battling its second recession in four years as trade and banking links with the slumping euro area drag down growth. The economy shrank for a third consecutive quarter in the July-September period as measures to cut the budget deficit to avoid a freeze of European Union funding damped consumption and hurt confidence.

Forint Reaction

The forint erased gains earlier today and was little changed at 291.6 per euro by 9:18 a.m. in Budapest. The currency rose 9.2 percent last year, the most in the world after the Polish zloty, as investors bet that an aid deal with the International Monetary Fund was close and as Hungary profited from liquidity-boosting measures in the euro area and the U.S.

The economy shrank 0.2 percent in July-September from the previous three months and fell 1.5 percent from a year earlier.

Car production was the only area posting growth in November, statistician Miklos Schindele told reporters. The base effect, after growth of 3.5 percent in November 2011, also affected the year-on-year data, he said.

Talks with the IMF and the EU on aid of about 15 billion euros ($19.7 billion), which Hungary originally requested in November 2011, stalled amid a disagreement over the government’s fiscal policies.

Special Levies

Prime Minister Viktor Orban has relied on new taxes, including special levies on the banking and telecommunications industries, to keep the budget shortfall below 3 percent of economic output and avoid losing EU development funds.

The country may exit the bloc’s excessive-deficit procedure, easing fiscal pressure on the government, which may make room for economic stimulus, Daniel Gyuris, a deputy chief executive officer at OTP Bank Nyrt., Hungary’s largest lender, said in an interview with Index, published yesterday.

“Right now the deficit target is so important that it overrides everything, it’s not possible to grow like this,” Gyuris said, according to the news website. “This squeeze may ease next year and may provide new opportunities.”

The situation may allow for a reduction next year in the bank tax, the highest in the EU, by the amount banks provide in loans, which would compensate the budget by creating additional revenue elsewhere after boosting growth, Index said, citing Gyuris.

Hungary’s 100 billion-euro economy is the fourth-largest among the EU’s eastern members after Poland, the Czech Republic and Romania, according to Eurostat. The central bank reduced the benchmark interest rate for a fifth month to 5.75 percent in December as policy makers grew more concerned about growth than inflation.

The economy will expand 0.3 percent this year and 1.3 percent in 2014 after contracting a forecast 1.2 percent last year, according to the the latest European Commission forecast published on Nov. 7.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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