Budapest, 4 July 2019 – Hungary’s external vulnerability and risk assessment continued develop favourably in 2019 Q1. While net lending remained significant, the external debt ratios of the economy fell to new historical lows. External balance indicators continue to exceed the levels typical in the countries of the region.

In 2019 Q1, the net lending of the economy and the current account surplus amounted to 2.1 per cent and 0.1 per cent of GDP, respectively. The decline in external balance indicators is attributable to a modest decrease in the trade balance and EU transfers. The goods balance continues to be driven by strong domestic demand, but in Q1 the utilisation of previously accumulated inventories considerably improved the trade balance. The dynamic growth in imports was mainly due to buoyant corporate investment activity, which improves the long-term growth capacity of the economy. In line with a decline in interest paid to abroad, the deficit on the income balance continued to decrease.

In terms of the financing side, net FDI inflows in Q1 were significant, amounting to EUR 1.5 billion, while net external debt outflows reached nearly EUR 1 billion. As opposed to the reduction in government and corporate debt, net external debt of the banking sector increased. Accordingly, the net external debt-to-GDP ratio decreased to a historical low of nearly 8 per cent, while gross external debt fell to below 57 per cent of GDP, mainly as a result of the declining dependency of the state on external funding. Hungary’s short-term external debt amounted to EUR 19.3 billion, while the March level of FX reserves amounted to EUR 27.5 billion, continuing to significantly exceed the level expected and considered safe by investors.

In terms of the developments in savings, the net position of the private sector declined, while the net borrowing of the government decreased further. The expansion in corporate funding requirements primarily stems from the high investment activity. Households’ net financial savings were reduced by an upswing in household consumption, but the sector’s financing position remained strong. In the quarter under review, households’ – mainly long-term – government securities holdings continued to increase, further reducing vulnerability risks.