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Hungary’s net lending continues to be robust

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The Hungarian economy's net lending continues to be robust and is above the average of the CEE countries. Based on data from 2019 H1, net FDI inflow is significantly higher than the values recorded a year earlier. Accordingly, changes in the current account balance are driven by import demand due to strong investment developments, in addition to steadily rising export sales.

In 2019 Q2, the economy’s four-quarter net lending stood at 1.6 percent of GDP. In addition to stable net lending, data revised recently and retroactively show that the current account balance was -1.1 percent. From a real economy perspective, the changes in the structure of net lending, which forms the basis for long-term growth, reflected the strong expansion of investment and growing import demand associated with capacity increases. As a result, the domestic investment ratio rose to historic highs, above 27 percent. Meanwhile, in addition to the persistently strong utilisation of EU transfers, the transfer balance remained broadly unchanged. As a result of a decrease in interest paid abroad, the income balance deficit continued to decline.

On the financing side, despite the usual FDI outflow due to dividend payments, direct investment inflows in 2019 H1 significantly exceeded the values in the same period in recent years. Due to non-residents’ government securities purchases and a decrease in government securities market yields, there was a slight, temporary increase in the external debt to GDP ratio. However, the fall in yields signals a favourable development from the perspective of interest payment and vulnerability. Consistent with this and the likely stable net lending throughout the year, net external debt is expected to decline further in 2019. A decrease in gross external debt was nearly equivalent to 56 percent of GDP. Hungary’s short-term external debt fell to EUR 17.8 billion. Asa result, the June level of FX reserves amounted to EUR 27.1 billion, continuing to significantly exceed the level expected and considered safe by investors.

Developments in savings exhibit a structure supporting stable economic growth. In line with strong investment activity, companies’ net borrowing rose. Meanwhile, disciplined fiscal policy resulted in a further decrease in the government’s net borrowing. Households’ net financial savings remain high, which was also supported by the launch of Hungarian Government Security Plus. The structure of households’ retail government securities portfolio shifted towards longer-term securities due to the issuance of the new government security (MÁP+).

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