Budapest, 3 July 2018 – Hungary’s net lending rose to nearly 5 percent of GDP in 2018 Q1. The increase was mainly attributable to the growing absorption of EU funds, while strong domestic demand reduced the still high trade surplus. As a result of the increase in net lending and net FDI inflows, external debt indicators continued to decline. The current account surplus of 3.1 percent still significantly exceeds the balances of the countries in the region.
The net savings position of the Hungarian economy rose slightly in 2018 Q1 to reach a very high level. While net lending was close to 5 percent of GDP, the country’s external debt declined further, leading to an improvement in the external vulnerability of the economy. The high net lending evolved as a result of the private sector’s rising financial savings (in parallel with a significant expansion in income) and the subdued net borrowing of the general government, which was slightly above 2 percent.
The increase in net lending mainly stemmed from the rising absorption of EU transfers. Nevertheless, against the background of a dynamic increase in investment and strong household consumption, the trade surplus also contracted more slowly than in the previous quarters. Accordingly, on the whole, the trade surplus and the current account surplus as well as net lending significantly exceed the levels typical in the countries of the region.
As for financing, net external debt declined considerably again, while net FDI inflows exceeded the data of the same periods of previous years and amounted to some EUR 0.4 billion. Due to the favourable external position, external debt indicators continued to decline: the gross and net external debt-to-GDP ratios fell to nearly 59 percent and 11 percent, respectively. Short-term external debt, which is of key importance in terms of external vulnerability, rose to EUR 18.2 billion from its historical low recorded in the previous quarter. The Q1 level of foreign exchange reserves of more than EUR 23 billion still significantly exceeds the level expected and deemed safe by investors.