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Current account surplus facilitates a further decline in Hungary’s net external debt

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8 October 2018

Hungary’s net lending amounted to 4 percent of GDP and its current account surplus to 2.5 percent of GDP in 2018 Q2. As a result of the country’s strong net lending position, net external debt continued to fall, reaching historically low levels below 10 percent of GDP. The current account surplus remained higher than the levels in the other countries in Central and Eastern Europe.

The net lending of the Hungarian economy amounted to 4 percent of GDP and its current account surplus to 2.5 percent of GDP in the second quarter of 2018. The weaker net lending position compared to previous periods partly reflected the sharp expansion in investments and the import demand of household consumption, as well as a slight decline in EU transfers. In a sectoral breakdown, the fall in net lending reflected the increasing net borrowing of the government and corporate sectors and an increase in household savings to 6 percent as a percentage of GDP. Overall, the country’s current account surplus and net lending position continued to significantly exceed levels typical in the other countries in Central and Eastern Europe.

With regard to indicators of external debt, Hungary’s net external debt fell to below 10 percent of GDP, marking the lowest level ever registered for this indicator. The gross debt-to-GDP ratio amounted to 60.3 percent. Foreign direct investment levels were broadly unchanged after having usually declined in previous years: foreign-owned companies reinvest an increasing portion of their income in Hungary, which offsets the downward effect of seasonally characteristic dividend payments on FDI. Short-term external debt, a key indicator in terms of the country’s vulnerability, rose slightly to EUR 18.7 billion. At the same time, Hungary’s foreign exchange reserves grew faster than its debt: the level of EUR 24.1 billion at the end of the June was higher than the level required and deemed safe by investors by a larger margin than previously.

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