The Macroeconomic Impact of CBDC: Why Model Predictions May be Wrong

After the positive surprise in June, Hungarian industry was not quite able to maintain the momentum in July. The latest data is not terrible, but it is not good either. On a monthly basis, industrial production adjusted for seasonal and calendar effects stagnated in July 2024. If anything, it is encouraging that, unlike in Germany, the previous month's rise was not followed by another significant negative correction.

As the base of the previous year was quite high, the calendar-adjusted figure in Hungary still shows a significant year-on-year decline of 6.4%. With two more working days in July this year, the raw data paints a much more positive picture than the actual performance.

So the overall picture is very mixed and rather disappointing. This is reinforced by the fact that industrial production is still 3.4% below the average monthly volume in 2021, and we are still quite close to the trough in 2021.

Volume of industrial production

Source: HCSO, ING

Detailed data is yet to be published, but the preliminary release from the Hungarian Central Statistical Office (HCSO) shows a similar structure to what we have seen in recent months. Of the four main industrial sub-sectors, food is able to grow, while neither transport equipment (cars), electrical equipment (EV batteries), nor computer, electronic and optical products (electronics) segments are able to expand. But this is hardly surprising given global trends. Recent industry surveys and confidence indicators around the world continue to point to further weakening or, at best, stagnation. Of course, the reliability of these surveys remains highly questionable, but for now, anecdotal evidence does not really contradict this gloomy picture.

One piece of evidence is that Volkswagen is considering closing German plants for the first time in its 87-year history. This is clearly a red flag, as jobs at VW in Germany are supposed to be protected until 2029, but the company may now renege on this promise. Zooming out, German industry is still at a low point, and the July data was a very big negative surprise. German industrial production is still more than 10% below pre-pandemic levels.

Moreover, the expected loss of momentum in the US and Chinese economies and the tensions in international trade hardly point in the direction of a positive breakthrough for German or even euro-area industry. Further anecdotal evidence of challenging times ahead for the car industry is the recent news from Volvo that it is reversing its much-publicised plans to produce only electric vehicles by 2030 as a result of slowing demand.

Performance of Hungarian industry

Source: HCSO, ING

It is, therefore, difficult to pin hopes for a short-term recovery in Hungarian industry on a revival in export demand. Global order books are dismally low and inventories of manufactured goods have barely come down from their peaks. It is no coincidence that recent surveys suggest that lack of demand is currently the biggest obstacle to growth for manufacturers.

In other words, only a turnaround in inventories and an improvement in consumer confidence can make a lasting difference and begin to restore order books. This means that the recovery in external demand will be a slow and gradual process. The outlook for sectors producing for the domestic market is not encouraging either. According to the latest data (June), domestic order books for the monitored manufacturing sectors were 5.5% lower than a year earlier. The export order book is almost 29% below last year's level. This may be behind the recent deterioration in the Hungarian manufacturing PMI.

Manufacturing PMI and industrial production trends

Source: HALPIM, HCSO, ING

The combination of low domestic consumer confidence, a strong propensity to save and sluggish business investment also makes the outlook for the domestic market fragile. Towards the end of the year, however, domestic demand may improve to the extent that at least some industrial sectors will be able to grow sustainably. But this will not be enough to save the year. Hungarian industry as a whole could be a significant drag on GDP growth in 2024.

Turning to the shorter-term outlook, the July retail sales and industrial data do not yet give much cause for optimism about economic performance in the third quarter. It could well be that another negative surprise is in the offing, although we wouldn't go so far as to call for another technical recession just yet.

The government has always recognised the contribution of the Malaysian Chinese community in the country’s socioeconomic developments, as well as in economic, cultural, educational and industrial sectors, said Prime Minister Datuk Seri Anwar Ibrahim. 

Anwar said he acknowledged and saluted the role of Chinese entrepreneurs in Malaysia and globally for assuming the task of propelling the local and international economy.

“In a world marked by complexities and fraught with increasing instability, uncertainties and unpredictability, Chinese entrepreneurs globally can assume a bigger role in safeguarding regional economic cooperation, ensuring the security of crucial supply chains and promoting our global socio-economic development agenda. 

“From Southeast Asia to East Asia, the United States, Canada, Europe and Africa, Chinese entrepreneurs have collaborated closely with others and have laid the foundations for forging deeper and stronger business and economic links across national borders.” 

Anwar said this in his keynote address at the 17th World Chinese Entrepreneurs Convention (WCEC) here on Tuesday.

The prime minister said that under the Madani Economy framework, the government will continue to prioritise the enhancement of the economic landscape, fostering an environment conducive to investment and innovation.

At the same time, he said the government is also open to suggestions on what else needs to be done to foster such an environment.

“We are not here to suggest that it (the Madani Economy framework) is a perfect system and policy; we are here to govern and to learn and make a necessary adjustment because the fundamentals remain economic advancement,” he said.

Anwar said that only through economic success can the government ensure better housing, healthcare and infrastructure for the people, including inclusivity.

Meanwhile, he said Malaysia and China have enjoyed a longstanding bilateral relationship, underpinned by robust trade and investment ties, which will not only benefit Malaysia but also help the region continue to advance this policy.

The prime minister added that the relationship extends beyond traditional investment policies and practices, and that it has evolved into a more competitive new economic framework that encompasses not only investment but also other sectors, including tourism.

Some 4,000 local business leaders and overseas delegates from Asia, Europe, the Middle East, as well as North and South America, are attending the three-day convention organised by the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) at the Kuala Lumpur Convention Centre.

Source: Theedgemarkets

Alternatives are an effective portfolio stabilizer: 

There is more than meets the eye in real estate: 

There are secular growth opportunities in infrastructure: 

Private equity exit activity, despite improving on the margin, remains sluggish: 

U.S. private equity exit volume remained below pre-pandemic levels in 1H24. While IPO activity has improved in recent quarters, exits will likely remain subdued until interest rates move lower. Against this backdrop, secondaries are an attractive avenue for investors to gain exposure to seasoned assets at discounted valuations.  

Elevated public market valuations, historically low bond yields and positive stock-bond correlation are all challenges facing the traditional 60/40 portfolio. Moving forward, investors may need to rely on alternative asset allocations to enhance return, income, and diversification in their portfolios. Indeed, investors are already planning on allocating more to a broad range of alternative assets.