Heat and drought test Hungary’s economic recovery, but momentum holds up
In the face of extreme weather disruptions, Hungary's economy remains surprisingly resilient, with a noteworthy rebound in industrial production supporting growth momentum. Per the full note , while severe drought and heat have dampened consumer activity in retail, industrial output unexpectedly rose 1.0% month-on-month, yielding an impressive 8.7% year-on-year growth—its strongest since late 2022. This unexpected strength in industrial production, alongside positive consumer sentiment, positions Hungary for continued recovery, despite the challenges posed by climatic conditions. With the upcoming data expected to further inform FX trader positioning, caution remains prudent as Hungary's economic performance unfolds amid external realities.
What the desk is arguing
The desk views Hungary's economic resilience as indicative of a potentially undervalued outlook for the HUF in the near term. While the hot summer has seen dips in consumer activity, surprising industrial production figures have reinforced a positive growth narrative. Per the full note , this is illustrated by an 8.7% year-on-year growth in industrial production, contrasting sharply with earlier forecasts of a decline.
The Hungarian Central Statistical Office reported that despite the adverse weather impact, industrial output continued to thrive, significantly supported by a low comparative base from 2022. This sets a precedent for ongoing growth, as indicated by rising real disposable incomes which could bolster consumer confidence in the months ahead.
Where it sits in our coverage
Our consensus target for the HUF is 1.075, reflecting both the underlying economic recovery and a stabilizing inflation outlook. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which appears optimistic about efficient recovery, contrasting with bofa's more cautious stance at the lower end of the range, positioning the desk's perspective at a moderate bullish angle within this spectrum.
How other firms see it
Firms such as jpmorgan and those with a bullish outlook on Hungary tend to focus on improving industrial metrics and consumer sentiment, while bofa presents a more conservative viewpoint based on external economic pressures. This divergence highlights the need to closely monitor indicators related to Hungary's economic health, such as retail sales and consumer confidence metrics going forward.
Worth noting, the HUF's current trajectory may reflect broader conditions influencing the EUR/USD dynamic, especially with respect to ECB policy adjustments ahead.
What the calendar says
No key calendar events are presently noted that would influence Hungary's currency movements, allowing traders to focus on the fundamental data releases surrounding industrial production and retail sales as potential catalysts moving forward.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Hungary's industrial production has shown surprising strength with 8.7% YoY growth.
- 02Retail sales momentum is expected to recover as consumer confidence is bolstered.
- 03Severe weather has affected consumer habits, but the industrial sector remains resilient.
- 04The economic outlook supports a steady recovery narrative for the Hungarian economy.
Market implications
Traders should monitor the upcoming industrial production and retail sales data, especially given the positive industrial output surprise of 1.0% MoM recently. A sustained positive trend in these figures may support HUF appreciation against the EUR. Watching the 1.07 level can be pivotal for market positioning.
Risks to this view
Any significant delays in retail recovery or persistent adverse weather impacts could undermine consumer spending and industrial performance, forcing a reassessment of the optimistic growth narrative. External economic pressures, such as shifts in ECB policy, may also pose risks to HUF stability.
Articles Heat and drought test Hungary’s economic recovery, but momentum holds up Published 13:50 Hungary Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Extreme heat and severe drought took their toll on Hungary in August. Consumers appeared to cut back on trips to stores, but industrial production proved surprisingly resilient. Low river levels created additional headaches, but the economic recovery wasn’t washed away completely Peter Virovacz and Zoltán Homolya Bathers enjoy the waters of Budapest's Széchenyi Thermal Bath amid this summer's high temperatures As we near the end of the year, it is becoming increasingly clear that retail sales and industrial production are set to contribute positively to economic growth in Hungary, as we expected.
The sawtooth pattern in industrial production appears to have faded, strengthening the case for an industrial recovery. Retail sales lost momentum towards the end of the summer, but strong consumer confidence and rising real disposable incomes should help consumption regain momentum in the coming months. Hungarian industry is fighting back 8.7% Industrial production (YoY, wda) ING estimate: 3.7% / Previous: 4.7% Hungarian industrial output delivered a significant positive surprise in August.
Based on the pattern of recent months, we had expected a month-on-month decline. Instead, industrial output rose by 1.0% MoM. Helped by last year’s low base, the working-day-adjusted yearly growth rate jumped to 8.7%, its strongest reading since late 2022.
With the previous sawtooth pattern failing to reappear, the positive trend emerging since late 2025 remains intact. As a result, output in August was only 0.9% below the 2021 monthly average, in line with our expectations. After more than three years of contraction, this is a refreshingly positive development.
Volume of industrial production Source: HCSO, ING "> Source: HCSO, ING It is encouraging that the Hungarian Central Statistical Office (HCSO) does not list the energy sector among the negative contributors. This suggests that the impact of the Paks Nuclear Power Plant’s temporary partial shutdown and voluntary production cuts by private sector companies on overall industrial output may have been smaller than expected. The detailed data may, of course, still add some nuance to the picture.
Meanwhile, the construction of the Danube riverbed still probably provided some support to mining and quarrying, one of the smallest segments of Hungarian industry. Looking ahead, soft indicators also point to continued recovery. Business confidence rebounded in September following its sharp drop in August, as the energy crisis eased and voluntary production cuts ended.
Order books also suggest that the ramp-up of new manufacturing capacity will continue to provide meaningful support to industry, although growth is likely to remain concentrated in only a few sectors, affecting a handful of producers. Performance of Hungarian industry Source: HCSO, ING "> Source: HCSO, ING On the upside, the European economy’s better-than-expected resilience could support a stronger recovery in external demand. Conversely, elevated energy prices and supply-chain disruptions stemming from geopolitical tensions in the Strait of Hormuz and the Red Sea remain important downside risks.
Industrial output was 3.4% higher in the first eight months of the year, meaning that our forecast of 3-4% growth in 2026 still looks comfortably achievable. The industrial turnaround therefore looks increasingly convincing. The next major test will be whether growth can spread from a few isolated pockets to the industry as a whole.
Retail sales hit as consumers stayed home in the extreme heat 2.4% Volume of retail sales (YoY, wda) ING estimate: 4.2% / Previous: 4.9% The heatwave and the associated energy crisis may not have disrupted industrial production, but Hungary’s retail sector proved far less resilient. Retail sales volumes fell by 0.7% month-on-month in August, pushing the calendar-adjusted yearly growth rate down to 2.4%. This was a significant negative surprise, as we had expected the extreme heat to generate additional sales, particularly in certain product categories.
Instead, Hungarian consumers appear to have responded differently from what historical patterns suggested. Retail sales volume in detail (2021 = 100%) Source: HCSO, ING "> Source: HCSO, ING Looking at the longer-term trend, retail sales volumes in August stood 6.3% above the 2021 monthly average. Although the fixed-base index declined compared with the previous month, revisions to recent data suggest that we can no longer speak of a plateau.
Instead, a modest upward trend appears to be taking shape. The details behind August’s weaker performance highlight the impact of extreme weather. Non-food retail sales were broadly stagnant, while mail-order and online sales increased by 3% MoM.
By contrast, in-store sales fell significantly, by around 1-3%, across almost every segment. One notable exception was clothing, where sales increased by 3% on a monthly basis. It seems the extreme heat may have prompted consumers to refresh their wardrobes with lighter, more breathable clothing.
Sales at grocery stores fell by 0.4% MoM. Given that the decline was concentrated in stores selling food, beverages and tobacco, we cannot rule out the possibility that households shifted some purchases to online channels to avoid the heat. Fuel sales, meanwhile, dropped by 2.1% compared to the previous month.
Given the sharp increase in fuel prices, this suggests a relatively strong demand response to higher prices. The weakness in August retail sales can therefore be partly attributed to lower fuel purchases. Breakdown of retail sales (% YoY, wda) Source: HCSO, ING "> Source: HCSO, ING Looking ahead, the foundations for continued growth in retail sales, and consequently household consumption, remain favourable.
Consumer confidence has risen to historically high levels, although it is currently undergoing some correction, while inflation remains relatively moderate and nominal wage growth is still strong. Rising incomes and stronger consumer confidence are a combination that has historically helped shift consumption into a higher gear. We therefore expect the upward trend in retail sales to continue over the remainder of the year, albeit with considerable month-to-month volatility.
For 2026 as a whole, we continue to expect growth of around 4-5%. Moreover, economic policy measures planned for next year are specifically aimed at supporting lower-income households, which typically have a higher propensity to consume. This could provide an additional boost to retail sales and, ultimately, household consumption.
Retail sales Manufacturing Industry Hungary GDP Consumption Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Peter Virovacz Chief Economist, Hungary Peter Virovacz is a Chief Economist in Hungary, joining ING in 2016.
Prior to that, he has worked at Szazadveg Economic Research Institute and the Fiscal Council of Hungary. Peter studied at the… Zoltán Homolya Economic research trainee Zoltán Homolya works as an Economic Research trainee at ING, where he has been employed since July 2025. He is a student at Budapest University of Technology and Economics, majoring in… In this article Hungarian industry is fighting back Retail sales hit as consumers stayed home in the extreme heat
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