Hungary Industry Output Grows at Fastest Pace in 3 Years

Hungary’s industrial-output growth unexpectedly accelerated at the fastest pace in three years as carmakers raised production, boosting Prime Minister Viktor Orban’s bid to regain the country’s investment credit grade.

Industrial production expanded at a workday-adjusted 10.1 percent in April from a year earlier, the fastest since February 2011, compared with the median estimate of 7 percent growth in a Bloomberg survey of 13 economists. Production rose 2.4 percent from March.

“Hungary’s industry is expected to show an impressive performance in 2014 and should be an important driver of this year’s” expansion, Orsolya Nyeste, a Budapest-based economist at Erste Group Bank AG, said in an e-mail today.

Orban has focused on encouraging manufacturing investment, while levying special taxes on banking, energy, telecommunications and retail companies to plug budget holes. That policy contributed to a recession in 2012 and the loss of the country’s investment debt grade. As carmakers, including the local unit of Daimler AG, have boosted production to drive growth to its fastest pace in eight years, the cabinet wants recognition from rating companies.

“It is becoming increasingly difficult for the credit rating agencies to ignore the brightening fundamentals of Hungary’s economy,” government spokesman Ferenc Kumin said on his blog today. “It is time to upgrade the rating.”

The forint strengthened 0.3 percent to 304.16 per euro at of 11:52 a.m. in Budapest. The yield on the government bond maturing in 2018 dropped to 3.3 percent from 4.2 percent a month ago.

Junk Grade

Hungary’s government bonds are rated junk by all three major credit rating companies. Fitch Ratings, which rates Hungary BB+, the highest non-investment grade, is scheduled to publish a report on the country’s creditworthiness tomorrow.

Standard & Poor’s in March raised the outlook on Hungary’s BB grade, two levels below investment quality, to stable from negative. It said the rating was constrained by the level of government debt and policy unpredictability.

Hungary has the highest debt ratio among the EU’s former communist members at 84.6 percent of gross domestic product at the end of the first quarter, according to central bank data. The country continues to have “macroeconomic imbalances, which require monitoring and decisive policy action,” the European Commission said in a June 4 report.

Hungary’s dollar bonds have returned 53 percent since Fitch downgraded Hungary to junk in January 2012. That’s the second-biggest gain among 56 countries in the Bloomberg Dollar Emerging Market Sovereign Bond Index, after Pakistan, and almost three times as much as the index average. The yield on Hungary’s dollar notes due in 2041 hit a record-low of 5.76 percent on May 30.

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