(Bloomberg) -- Hungary’s industrial production shrank more than expected in July as the vehicle sector championed by the government underperformed once again.
The forint weakened after data on Friday showed industrial output contracted a workday-adjusted 6.4% from a year earlier, the worst figure so far this year. That compared with a median estimate for a 5.9% decline in a Bloomberg survey. Production was unchanged from the previous month, the statistics office said.
The data underscored the challenge facing Prime Minister Viktor Orban’s government, which has struggled to reinvigorate the economy after a recession, while also dealing with recurring budget deficit overshoots. The economy posted a quarterly contraction in the April to June period, raising the possibility of slipping back into recession after a tepid recovery.
“The production outlook isn’t looking good in the short term,” Janos Nagy, a Budapest-based analyst at Erste Bank, said in a note to clients, citing lackluster economic sentiment across Europe. Battery and car-industry investments under way may start to translate into an upswing next year, he added.
The forint weakened 0.2% against the euro in early trade in Budapest, adding to a dip late on Thursday and underperforming the region’s other currencies.
The government has been blaming the underperformance on Hungary’s main export markets in western Europe, particularly Germany. That’s dragging down the economy despite hopeful signs in other areas, such as robust real wage growth and slower inflation, the Economy Ministry said.
“It’s hard to predict the turnaround for domestic industry,” the ministry said in a statement after the publication of the industry data.
Apart from the drop in car making, electronics — which includes Hungary’s burgeoning battery plants — also contributed to the decline, the statistics office said. The food sector grew.
Another key area the government is watching for signs of an upswing is domestic consumption, which it has said is key to exiting the downward spiral. There are few signs of a significant improvement there either, with July retail sales growing 2.5% year-on-year, trailing estimates, data showed on Thursday.
--With assistance from Marton Kasnyik.
(Adds forint reaction, chart, ministry and analyst comments)
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