BUDAPEST, Dec 6 (Reuters) - Hungary's industrial output fell more than expected in October while calendar-adjusted retail sales dropped by an annual 6.5%, suggesting the economy remains fragile as Europe's highest inflation rate subsides.
Industrial output fell 3.2% in October, more than twice the drop forecast by analysts, while retail sales data showed Hungarian households continued to tighten their belts.
Central Europe's economies have sputtered since last year due to an inflation surge that has dented purchasing power and spending, with Hungary's annual inflation peaking at 25% in the first quarter. Firms have seen their order books shrink.
Czech retail sales fell in annual terms for an 18th straight month, although the 1.4% drop was the slowest in the cycle.
With inflation easing, recovery signs have appeared in recent weeks across the region but Hungary's data on Wednesday showed a fragile picture.
"What we can see is that even though prices are decreasing, consumer confidence is at a 10-year low and this won't change from one moment to another," said Peter Virovacz, an analyst at ING.
Households continue to be cautious and seek cheaper solutions, while fuel sales had not picked up either in a significant way in October on a monthly basis even though prices fell, he added. Weak consumer spending has also weighed on the performance of industry.
"So we will see the economy in recession this year, and the recession would be much deeper not counting the agriculture sector (which had a good year)" the analyst added.
Hungary's inflation slowed into single digits in October for the first time since April 2022, leaving room for the central bank to continue its easing policy in place since May.
The National Bank of Hungary has slowed its cutting cycle to 75bp cuts each meeting, and, focusing on its inflation-cutting mandate, has so far withstood mounting government pressure to speed up its rate cuts to foster an economic recovery.
"Assuming the Forint remains relatively stable, we continue to expect the NBH will follow through on this guidance at the final meeting in December, bringing the policy rate to +10.75% by year-end," Goldman Sachs said in a note. (Reporting by Krisztina Than; editing by Christina Fincher)
