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Hungary's net lending still exceeds the regional average

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Budapest, 3 July 2017 – Hungary's net lending position developed positively again in the first quarter of 2017. Net FDI inflow and the decline in external debt ratios continued, alongside a current account surplus exceeding 5 per cent of GDP. The economy's net lending still substantially outstrips the values observed in the countries of the region.

The Hungarian economy exhibited significant net lending in 2017 Q1 as well. Net lending, which is deemed high in a regional comparison, contributes to the continued decline in the economy's external vulnerability. All domestic actors contributed to the substantial net lending. The household sector's high savings still play a dominant role in the process, the impacts of which were supplemented in the first quarter by the moderate developments in the general government balance.

Hungary's current account surplus decreased slightly, but remains high. The shift is primarily attributable to the decline in the trade surplus, where the decrease in the goods balance was a major factor. The decline in net exports can be mostly linked to the deterioration in the terms of trade. On the other hand, the significant growth in industrial exports mitigated this impact, and thus the trade surplus remained at around 10 per cent of GDP. The transfer balance decreased slightly, while the income balance stabilised – as the combined result of the decrease in the income of workers employed abroad and the fall in net interest expense related to foreign loans. On the whole, the aforementioned shifts led to a minor decrease in Hungary's net lending, but the level thereof still exceeds that observed in other countries of the region.

According to the financing side developments, net FDI inflow continued in the first quarter as well, while net external debt decreased by roughly EUR 0.7 billion, as a result of transactions. In early 2017, banks' external debt rose substantially as result of foreign deposits placed with them. The decrease in the government's net external debt is mostly attributable to the decline in non-residents' government securities holdings, which was supported to a large extent by households' substantial purchase of government securities. In addition, in the first quarter the net external debt of non-financial corporations also declined.

The downward trend in the debt ratios seen for several years now continued in the first quarter of 2017: Hungary's GDP-proportionate gross external debt fell to 69 per cent, while its net external debt decreased to 18 per cent of GDP. The decline in net external debt was linked to the general government and non-financial corporations, while that of the banking sector rose. The increase in banks' liabilities at the beginning of the year exceeded the continued rise in external assets, but on the other hand banks' stock of external assets still exceeds the sector's external debts. At EUR 24.4 billion, the level of foreign exchange reserves still significantly exceeds the level expected and deemed safe by investors.