Central and Eastern Europe: Structural Current Account Deficits and Increasing Foreign Debts (II)
Persistant current account deficits and increasing foreign debts are alarming though hardly discussed trends of East Central Europe's economic development. Part II: Poland, the Czech Republic, Slovenia, Hungary, and Slovakia.
Rainer Tomassovits and Joachim Becker - Oct. 12, 2006
Poland’s balance of trade deficit increased during the 1990s until it reached its peak level in 1999 (14 bn €). After this maximum in 1999 the deficit has been able to be reduced to 2.2 bn € in 2005. The balance of services has been positive all over the period with little fluctuations. The balance of income has been persistently negative with a significant worsening in 2004 when a deficit of 9.28 bn € was incurred compared with 3.2 bn € in 2003. Transfer payments to Poland have been high. In 2005 the current transfers balance achieved its maximum at 5.6 bn €. The current account deficit amounted to 4.3% of GDP in 2004, but decreased to 1.4% in 2005. Financial account fluctuated heavily between 3.5 bn and 11.9 bn €, reaching this peak level in 1998 and again in 2005.
The trade balance deficit of the Czech Republic decreased in the second half of the 1990s. This was at least partly a result of a devaluation of the Czech Koruna. After a riseat the beginning of this century, the trade balance turned positive the first time in 2005. Services showed a high surplus in the 1990s balances, before in 2002 a significant decline occurred (2001: 1.7 billion €; 2002 0.7 billion €). A clearly negative trend can be observed for the income balance with record deficits in 2004 (4.94 bn €) and in 2005 (4.78 bn €). The current account deficit amounted to 5.2% of GDP in 2004 (but similar to Poland this rate decreased in 2005 to 2.1%). The financial account varied a little during the 1990s between 2.5 bn € and 3.4 bn € (with two exceptions in 1995 and 1997). The same can be said about recent years but the amount of the surplus has been much higher (between 4.1 bn € and 5.7 bn € and one exception in 2002 – 11.3 billion €).
Slovenia’s trade balance deficit reached its maximum level in the years 1999 and 2000 when it was for the first time higher than one billion €. In the following years it has been reduced before it bursted the one billion barrier again in the last two years. In comparison with the trade balance, Slovenia has a very high service balance surplus, during the 1990s and again in 2005 it was higher or almost as high as the trade deficit. Slovenians income was positive all over the last decade, in 2001 it turned negative and climbed to over 0.2 billion €. Slovenia recorded a rather low current account deficit of 2.0% of GDPGDP in 2005. The financial account fluctuated heavily over the period, since 2002 there is a positive trend with a peak level of 831 million € in 2005. An interesting point here is that direct investment flows from Slovenia abroad has been higher than direct investment in Slovenia.
Hungary ’s trade balance has also exhibited a deficit for the whole period. In 2000 the deficit amounted to 3.2 bn € before declining to 1.6 bn € in 2005. The surplus of the service balance was over one billion each year (except 1999) with its maximum in 2001. Until 2003 it changed to a deficit of 401 million €. Today Hungary reports again a surplus of 448 million €. The income balance shows a very clear negative trend, it reached its highest level in 2005 (5.6 billion €). In 2004 the current account deficit amounted to worrying 8.8% of GDP. In 2005 it is still at the very high rate of 7.4%. Three lines of development can be stated for the financial account: the shift from a deficit in 1996 to a 6 billion € surplus in 1999, then a decrease to 2.6 billion € in 2002, the year another shift occurred with an increase that led to an 11.8 billion € surplus in 2005 with a more or less equal distribution among direct investments, portfolio investments and other investments.
Slovakia has reported permanent trade deficits, reaching its highest level in absolute numbers in 2005, i.e. 2 bn €. The negative trend typical of income balances in the region is also discernable for Slovakia with an extreme increase from 0.3 billion € in 2004 to 1.6 billion € in 2005. The current account deficit reached the very high level of 8.6% in relation to GDP in 2005. Financial account is positive at a constant level. Two exceptions should be stated for 2002 (due to an increase in direct investment) and 2005 (due to an increase in short-term other investment) when the surplus exceeded the four billion € barrier.
The trade balance deficit of the Czech Republic decreased in the second half of the 1990s. This was at least partly a result of a devaluation of the Czech Koruna. After a riseat the beginning of this century, the trade balance turned positive the first time in 2005. Services showed a high surplus in the 1990s balances, before in 2002 a significant decline occurred (2001: 1.7 billion €; 2002 0.7 billion €). A clearly negative trend can be observed for the income balance with record deficits in 2004 (4.94 bn €) and in 2005 (4.78 bn €). The current account deficit amounted to 5.2% of GDP in 2004 (but similar to Poland this rate decreased in 2005 to 2.1%). The financial account varied a little during the 1990s between 2.5 bn € and 3.4 bn € (with two exceptions in 1995 and 1997). The same can be said about recent years but the amount of the surplus has been much higher (between 4.1 bn € and 5.7 bn € and one exception in 2002 – 11.3 billion €).
Slovenia’s trade balance deficit reached its maximum level in the years 1999 and 2000 when it was for the first time higher than one billion €. In the following years it has been reduced before it bursted the one billion barrier again in the last two years. In comparison with the trade balance, Slovenia has a very high service balance surplus, during the 1990s and again in 2005 it was higher or almost as high as the trade deficit. Slovenians income was positive all over the last decade, in 2001 it turned negative and climbed to over 0.2 billion €. Slovenia recorded a rather low current account deficit of 2.0% of GDPGDP in 2005. The financial account fluctuated heavily over the period, since 2002 there is a positive trend with a peak level of 831 million € in 2005. An interesting point here is that direct investment flows from Slovenia abroad has been higher than direct investment in Slovenia.
Hungary ’s trade balance has also exhibited a deficit for the whole period. In 2000 the deficit amounted to 3.2 bn € before declining to 1.6 bn € in 2005. The surplus of the service balance was over one billion each year (except 1999) with its maximum in 2001. Until 2003 it changed to a deficit of 401 million €. Today Hungary reports again a surplus of 448 million €. The income balance shows a very clear negative trend, it reached its highest level in 2005 (5.6 billion €). In 2004 the current account deficit amounted to worrying 8.8% of GDP. In 2005 it is still at the very high rate of 7.4%. Three lines of development can be stated for the financial account: the shift from a deficit in 1996 to a 6 billion € surplus in 1999, then a decrease to 2.6 billion € in 2002, the year another shift occurred with an increase that led to an 11.8 billion € surplus in 2005 with a more or less equal distribution among direct investments, portfolio investments and other investments.
Slovakia has reported permanent trade deficits, reaching its highest level in absolute numbers in 2005, i.e. 2 bn €. The negative trend typical of income balances in the region is also discernable for Slovakia with an extreme increase from 0.3 billion € in 2004 to 1.6 billion € in 2005. The current account deficit reached the very high level of 8.6% in relation to GDP in 2005. Financial account is positive at a constant level. Two exceptions should be stated for 2002 (due to an increase in direct investment) and 2005 (due to an increase in short-term other investment) when the surplus exceeded the four billion € barrier.
Read in part III: the case of Estonia, Latvia, and Lithuania.
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