January data on industrial output and foreign trade confirm our concerns, that the waning foreign demand took a sig-nificant toll on Hungarian exporters at the turn of the year.
Although foreign trade did not deteriorate that strongly as in December, exports and imports decelerated further. In forints, exports fell 5.6% y/y, while imports contracted by 8.5% y/y. Data in HUF are affected by appreciating forint; however, in USD, exports fell 3% y/y, while imports de-clined 6.1% y/y. Exports managed to decelerate at a slower pace than imports, however, this positive phenomenon can-not be exaggerated, as imports declined due to lower im-ports of raw materials, which indicate that exporters count with continued low demand for their production. The trade balance finished at HUF 82.5 bn, or USD 301 m in January, down from USD 368 in December.
Industrial output again finished in red. In seasonally ad-justed terms, the production was down 1.5% y/y after rising 1.6% y/y in December, the unadjusted data fell 1.6% y/y. Given the situation of the foreign trade (declining imports), we cannot expect improvement in the near future.
Another factor that has already started to affect adversely the foreign trade is the strong forint. If the inflation falls in line with the central banks projections, the National Bank of Hungary should be inclined to cut rates further in order to ease the pressure on exporters.
Jakub Dvorak, CSOB