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MNB: Moderate dynamics of global trade may carry downside risk for Hungarian growth

Analysis

Net exports were one of the most important components of Hungarian economic growth in the past period and as world trade is falling short of its pre-crisis levels, this may carry a downside risk to domestic growth, the National Bank of Hungary (MNB) said today in its Growth Report.

The average 20% export growth of the pre-crisis years fell to almost 8% in the period of recovery. Hungaryʼs economic performance was generally surpassed by the export dynamics, but in recent years the difference decreased, in correspondence to international trends.

Import dynamics may increase in the foreseeable future with the recovery of the economy. However, because the further expansion of global value chains reached its limit, the growth of trade may remain below its pre-crisis levels in the coming years, the report says.

According to the MNB, the possibility of stimulating external trade lies in an increase in export market share and the rise in domestic value added content of exports.

Export market share can be increased by expanding export capacities and attracting FDI, the report notes. The broadening of global value chains decelerated recently, and thus the slowing FDI may intensify competition in the region, according to the report, which notes the resulting importance of domestic competitiveness and the reliability of the business environment.

The increase in value added products is primarily related to the strengthening of local supplier relations, and the consolidation of the suppliers that gradually settled in after the large manufacturing investments of recent years may have had a positive impact on Hungarian export dynamics, the report says. The increasing involvement of the domestic SME sector may become a determinant element of the process as well, it said.

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