GKI analysis: Lagging exports, lagging labor productivity

Although domestic manufacturing exports measured in euros (and of course the related imports) doubled between 2010 and 2023, the countries of the region performed better than us in this indicator in the examined period: in Poland, manufacturing exports measured in euros increased by 2.9 times, in the Czech Republic by 2.4 times, and in Slovakia by 2.3 times.

Although the development of exports depends on many factors, one of the most important of them is how competitive the economy is, a key element of which is the wage cost at which it can produce a unit of exported goods. With the depreciation of the forint, exporting companies are able to finance wage costs incurred in forint with fewer and fewer euros. So, despite all its disadvantages, the depreciation of the forint supports exports.

Large, typically multinational companies that produce almost 100% for export ultimately calculate with wage costs measured in euros, so an important aspect is to what extent the increase in their wage costs measured in regional currencies was offset by the depreciation of these currencies, or perhaps by increased productivity. Measured in national currency, domestic manufacturing labor costs have increased the most in the region since 2010 (mainly due to the higher inflation trajectory). By 2024, Hungarian manufacturing labor costs measured in forint had tripled. The second largest increase was in Poland, where the indicator increased 2.5 times.

However, domestic exporters were compensated by the continuous, regionally outstanding currency devaluation. The exchange rate of the Czech crown against the euro in 2024 was at the 2010 level, the Polish currency weakened by only 7%, and our northern neighbor bypassed the problem of devaluation, where the common European currency has been the currency since 2009. Meanwhile, the forint weakened by 30% against the euro.