CEE ECONOMY-Hungarian retail sales struggle in January as recovery falters

"This can be considered a significant result, given that based on domestic and international tendencies, stronger consumer appetite around the year-end holidays is generally followed by a decline in January," the Economy Ministry said. Data released separately showed industrial output falling further in January, dealing another blow to Hungary's recovery prospects, with a surge in farm sector output saving the economy from an even deeper downturn last year.

Hungarian retail sales inched 0.6% higher year-on-year in January, with sales stagnating from the previous month, signalling risks to what Prime Minister Viktor Orban's government hopes will be a consumer-driven recovery this year.

The Hungarian release follows Polish data showing consumer spending getting off to a mixed start in January after the gross savings rate dipped into negative territory in four quarters since the start of 2022. After successive years of double-digit inflation that has far exceeded levels in the euro zone, the Czech Republic and Hungary slid into recession, while Poland, the region's biggest economy, avoided it by the narrowest of margins.

Orban's government, which targets economic growth of around 4% this year, found a silver lining in the fact that sales did not fall from the previous month after plunging by nearly 8% in 2023 as a whole. "This can be considered a significant result, given that based on domestic and international tendencies, stronger consumer appetite around the year-end holidays is generally followed by a decline in January," the Economy Ministry said.

Data released separately showed industrial output falling further in January, dealing another blow to Hungary's recovery prospects, with a surge in farm sector output saving the economy from an even deeper downturn last year. ING economist Peter Virovacz said Hungary would have to produce unprecedented levels of quarterly growth to reach the government's 4% growth forecast, which is well above a 2.7% pace seen in last month's Reuters poll of economists.

"The Hungarian economy has never been able to achieve such dynamic growth for four quarters, with the exception of the special recovery period after the extreme Covid downturn," he said. "The rise in unemployment is a warning sign. The recovery in domestic demand could be increasingly offset by a continued weakening of exports, particularly given the latest global manufacturing situation."