Last year’s forecasts predicted a slight fall in Hungary’s foreign trade balance in the year of 2018. As the inflow of EU cohesion sources began in 2017, and reached its peak in 2018, it was easily predictable that import will grow accordingly. In the case of these extra investments, import growth is expected, as well as further supplementary import on consumption growth. An analysis by GLOBS Magazine.
Life has confirmed this assumption, as the import of goods increased by almost 7 % last year, while our export increased by 4,3 %, reaching another new record level in our history. As a result, our trade surplus for goods has fallen by 2 billion euro (around 1,8 % of our GDP) in 2018. As in the case of the previous year, 2018 also registered a negative contribution to the GDP growth for the second consecutive year, even though the 6 billion euro surplus can result in a positive current account balance, so we do not have to rely on our hard currency reserve to remain solvent.
We were lucky last year, because oil and raw material –irreplaceable import products for Hungary– prices remained low, creating a positive change in our terms of trade in the course of the year.
This phenomenon is positive. Nevertheless, we would be more competitive if our export would be able to keep the rhythm in case the increased import leaving the trade surplus would at least remain unchanged, therefore preventing the negative contribution to the GDP growth rate. Even against the good terms of trade, we shall continue with the moderation of our trade surplus in 2019, as many analysts predicts another decrease of 2 billion euro in trade balance of goods. As we can see now in the trade balance in service since 2018, the fall in trade surplus is expected to be partly counterbalanced by a modest increase of 1 billion euro in service trade balance surplus.
Anyhow, it is a positive trend that the export of goods increased by more than 4 billion euro. This momentum is a promising indicator for the future if we take into consideration that service export level of the country has also increased. Tourism and transport activity has shown growth in export and increment in surplus, which is important since these branches host a lot of Hungarian owned companies. It is a very serious question regarding tradition and competitiveness whether we can raise the net export of agriculture or/ and the productivity of food processing industry.
What about our competitiveness in trade?
The terms of trade on goods has slightly deteriorated in 2018, and it will go further in 2019, until it reaches the neutral position. One of the reasons for the falling trade balance is the price increase of strategic raw materials in the world market. Even if the oil price can improve the situation in Hungary, a moderate decrease in price level is expected in the first half of 2019.
As for the major group of trade products, unfortunately the agricultural and processed food products have lost a part of their previous positive balance due to the higher import and stagnating export performance. It means that the advantageous growth of internal consumption is largely fueled by import and not only by internal extra production. It is also unfortunate that last year’s import growth of machinery products –which is a source of increase in efficiency – has not changed significantly. In light of its export, the “import deficit of modernization” has not grown significantly, even though the investment level has grown more than 10 % last year.
As for the geographical trends in Hungary’s foreign trade, we can say that the position of the OECD countries and first of all EU countries remained strong. Not only the export level, but even our trade balance has improved in 2018. The deterioration of our balance is visible in the case of non-European countries. The first in the row is Asia. (China and Russia are the two countries where Hungary lost around 1-1 billon euro in balance deterioration, while this figure remained unchanged with the USA.) The new situation in China – internal consumption and investment has grown as a consequence of deterioration of foreign trade activity – is not a positive phenomenon for Hungary. Meanwhile, our position in Russia is still far away from the pre-crises state of 2014. This geographical trend shows that the rapid inflow of net EU funds since 2017 does not bring this money back to the EU countries directly in the form of import.
Therefore, we have to take note of the fact that – even with neutral terms of trade – the rising import as a consequence of the stronger internal consumption is not counterbalanced by extra export activity, and we lose significant GDP growth potential.
Nevertheless, it is a positive sign that the trade in services is growing constantly in Hungary, and the balance is also improving against the aforementioned trend, namely the higher internal consumption. The secret lies in the important service export factors, namely the tourism and the passenger and cargo transport services. It is very positive that these two service activities are capable to show anti-cyclical growth in net export within the period of higher internal consumption.
By Dr. Zsolt BECSEY, PHD, former Member of the European Parliament and former State Secretary for Foreign Economic Affairs
Source: GLOBS Magazine