Hungary foreign trade balance continues to drop in September
The value of imports in EUR was 12% higher in September than a year earlier, while export decreased by 1%, so the swift decline of the 12-month trailing balance continued.
The balance of external trade in goods began to decrease suddenly in July and continued for most of the third quarter cumulating in a EUR 1 bn deficit compared to a EUR 1.7 bn surplus in Q3 2020. There are several factors behind the worsening balance. Growing imports are a consequence of economic recovery after the coronavirus crisis as import for consumption and investments were both given momentum. The impact of strong government stimulus on demand only adds to the effect. Meanwhile, exports are hiccupping. Industrial output data show that production outages and supply problems have affected the entire manufacturing industry, so it is little wonder export is also stalling. Also, factories probably timed summer maintenance works tor August given the supply problems, which may have led to even more production lost.
One of the main reasons for the worse balance is the steep rise in energy prices. In EUR terms, Hungary’s energy bill nearly doubled in August. (The detailed September data will come out 3 weeks from now.) While this was mainly a result of higher energy consumption as the economy returned to normal, higher prices already played a role as well.
As the marked worsening of Hungary’s external balance only began in the second half, 2021 could still end on a surplus overall, but next year will bring an external trade deficit unless there is a major change in economic trends.
Portfolio has analysed the reasons for the worsening eternal balance in an earlier article.
We were confident of making a firm prediction as nearly all factors pointed in the same direction, and none of these appeared likely to change in the short term. Unless a huge shock hits the global and/or Hungarian economy, the factors below can influence Hungary’s external balance the most:
- Normalising energy consumption and increasing energy import. Before the coronavirus crisis, energy accounted for 8% of Hungary’s imports. This dropped to 5.5% last year, and while it rose to 6% in the first half of 2021, it will definitely increase further as economic performance returns to normal. At present, the smaller energy bill partly hides the worsening trend, but this will end soon.
- Rising energy prices and worsening trade ratio. Aside from quantities, the change in prices also points towards a worsening balance. There is no product with a major weight in Hungary’s export that has hectic price changes, which is fundamentally good, but there is one in import, and that is energy. Assuming unchanged import volumes, higher oil, gas and electricity prices will cost Hungary more. This will primarily be felt in the winter months.
- Stuttering supply chains, lower export potential. Problems in supply and raw materials have caused problems virtually only in the car industry and electronics manufacturing. However these two industries have the largest weight in manufacturing, accounting for 40% of production by value combined, and both produce primarily for export. As a result, outages have already begun to affect export performance as the volume of good exported has just stagnated this year. The situation will only worsen in the short term. Car factories were only producing at 70% of the previous year’s level in August, and waiting lists are becoming longer as next year’s production estimates are shrinking. The month-by-month changes of external trade balance illustrate this well.
- Government spending will increase and import will pick up. In preparation for next year’s elections, the central budget will jump to hyperspace speeds and will give both businesses and households a large amount of disposable funds. In a short period, it will pump 8% of the annual GDP into the economy, which will lead to unprecedented stimulus and explosive growth in consumption and investment demand. Experience shows that 70 to 80% of surplus consumption and investment appear in imports, so Hungary’s GDP-based balance will drop by several points just as a result of this.
Cover photo: Getty Images
