Hungary International Trade December 2007

Hungary's trade deficit was 170.2 million euro in December, according to revised figures released by the Central Statistics Office (KSH) on Wednesday. This figure was revised upward from EUR 148.1 m in the preliminary release. The statistics office has also modified data from a number of previous months (largely in the first half of the year), and the result that the final 2007 deficit is EUR 136 m less than the preliminary data. Along the revision imports came in EUR 8.8 m lower and exports EUR 13.3 m higher than first reading data.

The full-year trade deficit was EUR 307.6 m, while the preliminary balance showed EUR -443.5 m. This was a significant improvement on the 2006 deficit of EUR 2,379.1 m.


The EUR 170.2 m December deficit compares with a deficit of EUR 127.9 m in the same month of 2006. Follwing the revision there are now six months in 2007 where there was a goods trade surplus. Before this year Hungary had not produce trade surplus in a single month since 1999.



Exports grew by EUR 5,223.6 m or 6.4% year on year in December (revised down from a preliminary estimate of 6.7%) which compared with a 8.1% expansion in Nov and +15.9% in Dec 06.

Imports were up 7.1% or EUR 5,394 m (revised down from a preliminary estimate of6.9%), which compared with a 5.5% increase in Nov and +15.3% yr/yr in Dec 06. The gap between export and import growth was -0.7 ppt, revised from the preliminarry -0.2 ppt.

Exports in 2007 expanded by 16.2% to EUR 68,461 m and imports reached EUR 68,769 m, up 12.2% from 2006.

Unemployment, Producer Prices and Bond Yields All Up

Well the tendency in some key Hungarian indicators is definitely up at this moment in time. Unfortunately these are not the sort of indicators you want to see rising, like GDP growth, or industrial output, or construction output or retail sales, but ones you would like to see moving in the opposite direction like unemployment, export prices or yileds on government bonds.

On these latter the trend is decidedly up. Hungary's Government Debt Management Agency (ÁKK) sold HUF 107.4 billion worth of 5 year bonds at auction on Thursday. Demand for the bonds was not spectacular and they were sold at an average yield of 8.07%, which was up 16 basis point from the benchmark fixing the day before, and 80 bps higher than the last auction of this instrument. Accepted yields ranged between 8.03% and 8.10%.

Yields of Hungarian government securities rose again sharply (30-50 bps) in morning trade on Friday, both at the long and shorter end of the curve. Analysts are generally blaming this increase on the winding up of some Hungarian positions in the context of general global factors and the negative Hungarian economic fundamentals environment. There seems to be little liquidity in the Hungarian market at the present time.

As a result the forint also came under pressure loosing value in a fairly short space of time on Friday morning as can be seen from the chart below.




The key macro details this week have undoubtedly been producer export prices and unemployment. As can be seen in the chart below (and as explained in more detail in this post) these have now clearly moved from their downward trend, and have effectively been rising since March, indicating that some sort of "pass through" process from the domestic CPI inflation is now at work. Quite simply you can't have a fixed currency value and rising export prices if you want to live from exports by increasing your export share in the larger market. At the present moment this situation is not totally disastrous, since producer prices in most of Hungary's immediate external competitors are also rising, but clearly the longer this continues the more difficult the situation will become.




Unemployment is also rising. Again, this in itself is hardly surprising given the extent of the recession in internal demand, but it is worrying when we come to look at what is happening to employment participation rates, which - at a current level of 61.6% for the 15 to 64 age group - have now been dropping back steadily since the summer. There is some indication that among those who are leaving the labour market there are a significant number who have been accepting some form of early retirement.




Now a temprary withdrawal from the labour market in hard times is one thing, but a complete abandonment of it (via retirement) is quite another. Hungary's population is falling, as is - slowly but steadily - the population in the 15 to 64 age group.



So in the context of the decline in absolute numbers an increase in participation rates is absolutely vital. Hungary badly needs to start generating new forms of employment, and to attract an increasing proportion of workers in the older age groups back into employment. If we look at international comparisons of relevant countries Hungary obviously needs to follow to some extent the recent pattern in Germany and Japan where proportions of older workers have been improving significantly, but where the salaries earned in such employment has not been spectacular (economically speaking older workers are simply not worth so much beyond a certain age as their younger counterparts). This implies structural reforms in the labour market and pension system, and of course this may well not prove to be a particularly attractive proposition from the political point of view. In such an environment - and again as we have seen in Germany and Japan - it is hard to anticipate domestic demand becoming a key driver of growth, and hence export competitivity becomes critical.

Hungary Producer Prices January 2008

Hungary's industrial producer prices were up 3.0% month on month in January following on the heels of a 0.4% rise in Dec 2007. The increase was 4.3% year on year in comparison with a 1.6% growth in December according to data released by the Central Statistics Office (KSH) yesterday.

Domestic sales prices were up vy 5.0% m/m and 10.8% y/y from 6.2% in December while export prices were up 1.5% m/m and still decreased (but only just) y/y at -0.5%. If we look at the chart below the upward tren in producer prices is clear enough. Most preocuppyingly the level of export prices is now feeling the attrition.




While we are still in negative territory year on year with the exports prices, unless there is a reversal of the trend we are about to go positive as of next month. In fact, as you can see in the chart below, export prices have effectively been rising since April, and they are now up 3.3% since March.



Obviously, and unfortunately, we now look set to see more of this. The internal inflation process is now just too much for productivity gains to absorb. Of course global oil and food prices don't help any either, but the point at the end of the day is that with domestic demand in the condition it is, Hungary has no alternative but to export to grow, and with these relative price tendencies this would seem to be very hard work indeed.