Hungary's substantial net lending continues to reduce external vulnerabilityPrint
Budapest, 2 October 2017 – In the second quarter of 2017, Hungary's external balance position improved moderately in parallel with the rising absorption of EU transfers, while its current account balance declined as a result of the expansion in investments and consumption, which is supporting economic growth. The net lending of the economy continued to be accompanied by a significant decline in external liabilities. The Hungarian economy's net lending still substantially exceeds the values observed in the countries of the region.
In the second quarter of 2017, the Hungarian economy registered a substantial savings surplus of 6 percent of GDP, further contributing to reducing the country's external vulnerability. Most domestic actors contributed to the external balance surplus of the economy. The high level of household’s savings plays a dominant role in the level of the surplus, also supported by the favourable developments in the general government balance in the second quarter.
In contrast to the rise in net lending, the current account surplus decreased moderately, but remains high. The contraction of the current account surplus was mainly due to the higher import content of rising consumption and investment, as a result of which the four-quarter surplus in net exports decreased to 9.2 per cent of GDP. During the quarter, there was a rise in the absorption of EU transfers, which was primarily reflected in the capital account supporting investment and thereby also in the rise in net lending.
According to financing side developments, the decline in net external debt continued, while the seasonally typical dividend payments and outward investment by companies operating in Hungary resulted in a decrease in net foreign direct investment. During the quarter, both the general government and corporations reduced their net external debt, while the participants of the banking sector increased it.
As a result of the declining external debt, Hungary’s external debt ratios decreased further by mid-2017: gross external debt fell to 67 per cent of GDP, while net external debt dropped to 16 per cent. Short-term external debt, which is of key importance in the context of external vulnerability, fell to EUR 19.8 billion, and thus the stock of foreign exchange reserves still significantly exceeds the level expected and deemed sound by investors.