Data published on Wednesday revealed that Hungary's industrial sector is facing challenges in its recovery, leaving the domestic consumer sector to lead growth and offer crucial support for public finances.

In March, industrial production in Hungary fell by 2.8% compared to the previous year, according to the Budapest-based statistics office.

Economists had predicted a 0.6% annual decline, following a revised upward growth of 1.8% year-on-year in February. On a monthly basis, production decreased by 3%.

Hungary's manufacturing industry, which has been the country's main growth driver over the past decade, is grappling with the enduring impacts of the energy crisis and lower-than-expected demand from its key export markets within the European Union, Bloomberg reports.

Furthermore, the statistics office reported that all major sectors of the Hungarian industry contracted in the latest period, with the automotive and electrical industries, which carry significant weight, exerting the most significant downward pressure.

“The most positive news was that the food industry declined less sharply. In addition, the most important sub-sectors, transport and electrical equipment manufacturing, are in a slump. This is hardly surprising, given the state of the global economic cycle, the lack of demand for industrial products due to record-high inventories and the fact that order books are down by around 20% on a yearly basis,” ING reports.

However, Tuesday's data showed a more positive sign for the domestic economy, as March retail sales increased by the most in almost two years.

Indeed, Hungary's calendar-adjusted retail sales increased by an annual 4.2% in March, following a revised 1.6% rise in February, according to the Central Statistics Office on Tuesday.