Economy 6 March 2024, 9:24am

Nasty start to 2024, Hungarian exports drop sharply

Portfolio

This year's first data on Hungarian foreign trade have been published on Wednesday. The trade balance closed January 2024 with a surplus of 497 million euros. This confirmed expectations that the deficit in December was a fluke, but that the export performance was lousy in terms of growth.

Over the past year, we have become used to huge surpluses in the external trade balance month after month. There were three main reasons for this: the recession, a fall in imports due to falling domestic consumption, a much improved energy balance as energy prices normalised, and an export surplus from the boom in vehicle and battery manufacturing capacity.

In contrast, it was a surprise to see that there was again a shortfall in trade in December. Detailed data showed that the deficit was due to a massive surge in energy imports. On this basis, we expected to see a trade surplus again as early as January.

In view of this, we were expecting answers to two questions from today's statistical report.

Firstly, whether the surge in imports was indeed as isolated a phenomenon as had been suggested. As indicated, the answer to this is yes, and it was sufficient for the surplus to return. Imports in euro terms fell by 14% on an annual basis, meaning that once again tight domestic demand and the fall in energy prices are weighing most heavily on the import figure.

The other question was whether the weak export performance would continue. Here again the answer is yes, with exports contracting by 7% on an annual basis. This is not a big surprise either, and is in line with the weak industrial data also released today, although the rate of contraction is still disappointing. Some of this may be due to minor supply disruptions in production at the beginning of the year, but the downward trend is more likely to be explained by the persistent weakness in the industrial sector.

Today's industrial and export data suggest that economic activity remains weak at the start of the year, which may contribute to a slower-than-expected recovery.

The fall in exports, however, is not having a strong impact on the external balance for the time being, as the corrective effect of the decrease in imports is stronger. Paradoxically, a deterioration could be triggered precisely if the internal drivers of the economy (consumption, investment) were to recover and this would increase the country's import demand. Retail sales data, also released today, do not indicate that this has started to happen yet:

However, the trend improvement in the external balance will come to a halt in the coming months. This is simply because the country's energy balance will show less and less improvement on an annual basis, as the lower energy price is already creeping into last year's base period. This will stop the fall in imports (on an annual basis) and the export-import gap will close.