The upward trend in the external trade, in place since Q2 2013, has continued in 2016: the volume of both exports and imports rose. The surplus was up by EUR 1.3bn compared to the previous year, totalling EUR 9.9bn, a historic high in Hungary.
Two out of the three major international credit rating agencies, Moody’s and Standard&Poor’s had reviewed the rating of Hungarian long-term forex government securities this year and left it unchanged for at “BBB-“, with stable outlook. The announcement of Standard&Poor’s came on 24 February 2017, while that of Moody’s was on 6 March. Prudent fiscal policy, improving economic performance and Hungary’s stable economic balances have all contributed to the fact that Hungary has managed to maintain the rating. On the other hand, the country must improve the external debt position.
The Commission’s report is upbeat about the state of the Hungarian economy: it has been placed on a stable growth path, private consumption and exports have increased. Labour market indicators have improved, and significant measures have been implemented to incentivize the changeover of public work employees to the primary labour market. The fiscal deficit and the general government debt-to-GDP ratio have both declined; while the country’s net external position has also improved. The Commission prognosticates that these favourable trends are set to continue in coming years.
The performance of the Hungarian agricultural sector was outstanding in terms of output, employment and exports in the year 2016: the sector’s output was up by 18 percent compared to the previous year, and 16 500 new jobs have been created. Thus, this branch of the economy has become the growth engine of the entire Hungarian national economy. As special guest of the traditional Berlin International Green Week (Grüne Woche), one of the largest annual European agricultural exhibitions, Hungary has staged an impressive performance after the record-breaking year of 2016.
In the European Economic Forecast – Winter 2017, published on 13 February 2017, the European Commission has revised its prior estimate of Hungary’s GDP growth for the year 2017 from 2.6 percent to 3.5 percent. This prognosis is already nearer to the figure published in December 2016 by the Ministry for National Economy, predicting growth rates of 4.1 percent for 2017 and 4.3 percent for 2018.
All three major credit rating agencies have by now restored Hungary’s investment grade status. This had mainly been the result of falling external debt levels and lower exposure to forex risks as well as a drop in the stock of short-term external debt. The stock of forex reserves has also substantially exceeded the level of short-term forex debt. As a consequence, Hungary’s vulnerability to external risks continued to diminish in the third quarter of 2016.
According to data compiled by the Hungarian Central Statistical Office (KSH), Hungary’s external trade surplus increased by more than EUR 3bn, or 55.8 percent, between 2010 and 2015. In this period, the value of exports and the annual rate of export growth exceeded those of imports each year. Within exports, turnover concerning each commodity group has risen. In 2015, the two largest commodity groups were machinery and transport equipment as well as manufactured goods.
Thanks to the country’s R&D and manufacturing sector performance, Hungary jumped three places on Bloomberg’s Innovation Index, to No. 27 overall and to No. 13 within the EU. The Global Innovation Index, co-published by Cornell University, INSEAD, and the World Intellectual Property Organization (WIPO) in August 2016, also showed a favourable picture of Hungary’s innovation performance, as the country was ranked as 33rd out of the 128 countries analysed.
According to the latest report of the Hungarian Central Statistical Office (KSH), the unemployment rate has fallen and the number of people in employment has concurrently increased in the period September-November 2016.
The National Bank of Hungary (MNB) issued a statement on 7 January 2017, pointing out that “foreign currency reserves of the notebank totalled EUR 24.4bn at the end of December 2016, an appropriate amount according to forex reserve adequacy standards, the indicators closely followed by international investors.” This fact is being reflected by low yields on government securities, low forint exchange rate volatility and the recent upgrades by all three major credit rating agencies. The European Commission and the International Monetary Fund (IMF) have also found in their latest reports that the amount of forex reserves at the MNB was satisfactory.