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Foreign trade surplus hits historic high

Strong exports foretell an impressive start to the year and boost confidence in the forint.

In the past few days, Hungary posted very favorable foreign trade data and a significant current account surplus. Both figures can give a strong foothold to the Hungarian forint, which has performed surprisingly well since the beginning of the year, compared to other emerging market currencies.

The figures of the December foreign trade balance came as a massive surprise to analysts: According to preliminary data released by the Central Statistical Office, the trade surplus grew to €643 million from €246 mln from a year ago, while economists earlier forecast a surplus of €340 mln. The rise was driven by strong export growth: Exports rose 7.3% from the same period of the previous year, while imports increased only 1%. Three-quarters of the exports went to EU countries, and 76% of the imports came from the region. Data was exceptional for the entire year, too. For the full year of 2015, the trade surplus was €8.1 billion, up from €6.3 bln in 2014. Exports increased 7.4%, while imports rose 5.6%.

“Although no details are available yet, we assume that the growth rate of the imports fell back only temporarily,” Gergely Ürmössy of Erste Bank commented on the figures. “Also, as a result of this moderate data, the January imports growth rate will probably be higher than usual, as domestic consumption and investments are strongly linked to imports. As for the full year, we expect that the foreign trade surplus will come in at around €8 bln, similar to last year’s figure,” Ürmössy added. The massive surplus of the foreign trade account correlates with a high current account surplus. As data released on February 9 shows, the central state budget posted a surplus of HUF 17.6 bln, social security funds had a surplus of HUF 41.2 bln and extra budget funds reported a HUF 33.4 bln surplus in January. The HUF 92.2 bln budget surplus is outstanding compared to previous years. The only time the starting balance has been better was in 2012, the National Economy Ministry commented on the figures. According to Ürmössy, the surplus could protect the Hungarian currency from negative international stock market and investor sentiment.

Oil prices cut import costs

Gergely Suppan, an analyst with Takarékbank confirmed that last year’s foreign trade surplus of €8.1 bln is an all-time high figure, but also said that import figures were way under analysts’ expectations. According to him, the low figure was mainly caused by plummeting oil prices. In 2015, Hungary’s foreign trade surplus grew by €1.82 bln, towards which the last quarter of the year contributed €700 mln, which shows that net exports could have significantly added to GDP growth. “This shores up our expectations regarding the Q4 GDP data that comes out on February 12, and which is likely to show substantive acceleration again,” Suppan explained. According to Suppan, the recordhigh foreign trade surplus supports the country’s external financing capability, which means that the net external debt might disappear in the coming years, and Hungary could even become a net external lender by the end of the decade. As a result, external vulnerability will massively decrease, leading to financial stability, and, at the end of the day, further improvements in Hungary’s credit rating. As for this year, Suppan mentioned the risk of a slowing Chinese economy – and those of other emerging countries  – however, he added that this could be outweighed by the improving economic 

conditions in European countries that are more relevant for Hungary as a trade partner. When it comes to the Hungarian currency, it is worth noting that the forint has performed surprisingly well since the beginning of 2016, compared to other emerging market currencies. The question is how long can this good period last for the Hungarian currency? Optimistic analysts say that the EUR/ HUF exchange rate may reach 300 soon, as several things could support the forint in the upcoming months, such as the current account surplus, the expected sovereign rating updates, and the small deficit of the 2015 budget. Others, however, are less optimistic, 

forecasting that the forint could ease to 320 versus the euro within two months. Tatha Ghose, at Commerzbank, said that Hungary runs a significant currentaccount surplus, which has widened in recent years, meaning that the forint is “not a strong candidate for continuous depreciation in the longer-term. Nevertheless, the currency is forecast to depreciate over the coming year, as we forecast further rate cuts in 2016, with the official three-month deposit rate being lowered from 1.35% to 1% during H1 2016, and the central bank also expanding its substantial quantitative easing program in the form of cheap lending schemes for SME’s,” Ghose explained.

Numbers to watch for in the coming weeks 

January’s consumer price index will be released by the KSH on February 11. Consumer prices were up 0.9% year-on-year in December 2015 and the pace is likely to have picked up. London-based analysts wrote in advance that they expected January inflation to reach – or even exceed – 1%.

Preliminary GDP data for the fourth quarter of 2015 is due out on February 12.

Construction data for December 2015 and also for the entire year last year will also be released on February 12, along with the second estimate of industry figures for last December.

Agricultural producer prices for last December are scheduled to be out on February 15, followed by a second estimate of retail trade figures on February 23.