Hungary's exports are ailing, while trade surplus reaches all-time high

Although monthly surpluses were over €1 billion several times last year, we have never seen such a huge trade surplus as in February this year. This of course brings the balance for the first two months of the year to an all-time high (€2.2 billion), but even more impressive is that the rolling balance for the year to date is now over €11 billion.

The gut reaction to the reason behind such a rapid improvement is: "Sure, exports are growing faster than imports." But if you look at the numbers, exports in euro terms were 2.4% lower than a year earlier.

In other words, we should clarify our statement by saying that the huge surplus was due to a fall in imports that was even faster than the decrease in exports (-11.6%). This is a qualitatively different phenomenon. It is not the case that the rapidly growing Hungarian economy is closing the export gap, but that the fall in imports is far outweighing the impact of shrinking exports on the trade balance.

Although the preliminary trade report of the KSH does not yet contain detailed figures, based on the patterns of previous months, we can be relatively confident about the causes of this strange phenomenon.

The weakness of exports is not surprising, and the trend in industrial production shows that external demand is shrinking as Hungary's main markets are losing steam. The even sharper fall in imports can be attributed to several factors. The most striking element is the fall in the value of energy imports.

In early 2024, it is still true that the impact of the energy price correction will be felt on energy imports: in euro terms, Hungary is paying just over half as much for gas and electricity as it did a year ago. In addition, weak domestic demand is holding back imports. Imports of both manufactured goods and capital goods are shrinking.

As long as these trends persist, the trade surplus could widen further. While import demand may start to increase with the expected recovery, exports may also find their way back up, so the huge surplus does not seem likely to start to shrink significantly for the time being.

Today's external trade data suggests that the slight deterioration in the current account balance at the end of last year may be coming to an end, but also that the economy is still not in an excellent shape, and it is crawling rather than springing out of the recession in 2023.

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