Economy 8 December 2022, 9:00am

Another huge deficit in Hungary's external trade balance

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Hungary's trade deficit was EUR 1.01 billion in October 2022, the third largest deficit ever, according to preliminary data reported by the Central Statistical Office (KSH) on Thursday.

The high deficit is unsurprising for several reasons. First, October was still a time for filling up gas storages, so Hungary's energy import bill must still have been huge. On the other hand, industrial production was not robust at the beginning of Q4 either, which foreshadowed that even the export performance would not prevent the external balance from showing a large deficit. In comparison, the 21% year-on-year export dynamics in euro terms cannot be considered bad, but the nearly 26% increase in imports still caused the deficit to widen.

The main reasons for the deterioration of Hungary's external balance are still the extremely elevated level of energy prices and the Hungarian economy’s high dependence on energy imports. October's deficit is the third largest in the history of the Hungarian economy, and one does not have to look back very far to see figures above that: the deficit was EUR 1.6 billion in August and EUR 1.3 billion in July this year. (There is a high probability that the October figure will also move upwards in the subsequent data revision.)

We have already indicated that the lower September deficit figure (EUR 745 million) should not be taken as a first sign of improvement, as it may be simply due to seasonal effects. In the coming months, a number of counteracting effects could influence deficit developments.

The industry’s weakness in October raises the suspicion that the start of the gas year may put a more permanent brake on the sector's performance, as many companies are now facing a sharp rise in energy costs. At the same time, gas storage facilities are close to full and Hungary's imports have fallen in recent weeks. This, coupled with the general decline in import demand due to the economic slowdown, could put the brakes on the deterioration. November is traditionally a good month for foreign trade.

The deficit for the year as a whole could approach EUR 8 billion, which would of course be an unprecedented new record.