Economy 9 January 2019, 12:43pm

Hungary foreign trade balance deteriorates further

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Hungary posted nearly half a billion euros worth of foreign trade surplus in November 2018, according to preliminary data published by the Central Statistical Office (KSH) on Wednesday. The hefty surplus looks splendid, but also at first glimpse. The last autumn month is traditionally one of the strongest periods of the year, and the Nov print is actually the weakest since 2010.

The smaller-than-usual surplus came to pass as imports grew by 7.3% year on year, while exports were up only by 4.7% in euro terms. The phenomenon remains linked to the fact that domestic absorption of the Hungarian economy is still greater than the rate of GDP growth. Investments are driven by the rapid inflow of EU transfers and an increase in private developments, retail consumption, fast wage growth and rising employment.

Hungary’s foreign trade surplus remained under EUR 6 bn in the first 11 months, which has not happened since 2010.

Our seasonally-adjusted figures also show that Hungary’s foreign trade balance has been constantly deteriorating. We have a small interesting technical detail to offer which is that the adjustment programme is hesitating between considering the acceleration of the deteriorating trend as of the second half of 2018 as a downturn or as a fluke that could be disregarded. The software has opted for the second scenario therefore the trend line does not indicate an accelerated decline in the surplus.

The deterioration of the foreign trade balance is not so dramatic, of course, that we should sound the alarm just yet. The massive surplus of in the balance of foreign trade including services and the influx of EU transfers definitely keep the external financing capacity of the Hungarian economy in positive territory, and it is likely to remain so for years to come. At the same time, maintaining the macroeconomic equilibrium will require more attention after the cosy situation of the last few years.