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Thursday, October 09, 2008

Hungarian Exports Fall In August

Hungary posted a trade deficit of EUR 103.7 million in August, according to first estimate figures released by the Central Statistics Office (KSH) today (Thursday). This compares with a deficit of EUR 365.1 m in July and EUR -176.5 m in Aug 2007. Exports - at EUR 5,378.3 m - were down 0.7% year on year, which compares with a growth of 8.2% in July. The last time the 12 month export index was in the negative territory was in June 2003 (-1.3%).

Imports - at EUR 5,482 m - were down 1.9% year on year, while in July they were up by12.4%.

Tightening credit standards and the cut-back in credit lines to producers and wholesalers suggest there will be a further dramatic fall in new orders, which is likely to weigh on export performance. The question is how long and how far credit standards will continue to tighten, but the chances of a prolonged deterioration in financial conditions have increased, pointing towards sustained weakness in the real economy for some time to come.

Predictably the financial markets are not to enthusiastic about all this - since with internal demand contracting and now external demand folding to it doesn't look like we will see much in the way of growth (if any) during the second half of the year - and the forint which had opened today's trade at around 251 and firmed to around 249 to the EUR was hit hard in late afternoon trading and dropped to above 259 in the space of five minutes. By 17:00 it was already at 257, 2.8% weaker than at opening and after 17:00 it broke through 259, a 3.8% depreciation against today's high point of 249.

Basically, the crossover we need to be thinking about in macroeconomic terms is the one between the Swiss Franc and the Hungarian Forint, given the exposure of Hungarian households to Swiss Franc denominated mortgages, and the impact on internal demand which is to be expected if the current dramatic decline (see chart below) continues.

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