Budapest, 7 October 2020 – In 2020 Q2, the net lending of the Hungarian economy amounted to 1.1 percent of GDP, indicating a more favourable figure than the regional average. The current account balance declined, reflecting a lower trade surplus due to the coronavirus pandemic. As net FDI inflows continued, Hungary’s net foreign debt remained very low, at around 8 percent of GDP. Foreign exchange reserves exceeded short-term foreign debt significantly, by some EUR 10 billion.

As a result of the revision carried out concurrently with the quarterly data release, the current account balance retroactively rose to around zero in 2019. The amendment primarily reduced the profits of foreign-owned companies, resulting in a major decline in the income balance deficit. The revision also affected net lending to a similar degree; therefore, the external balance became more favourable, while the GNI–GDP gap also narrowed.

In 2020 Q2, the four-quarter net lending of the economy and the current account balance amounted to 1.1 percent and -1.1 percent of GDP, respectively. The decline in external balance indicators reflected a lower trade surplus due to the pandemic, which was partly offset by an improving income balance, resulting from non-resident companies’ lower profits as well as by the more favourable terms of trade due to lower oil prices. High absorption of EU transfers continues to contribute significantly to net lending.

Based on financing data, net FDI inflows continued in Q2 as well, and external debt indicators rose slightly, although they remain at very low levels, with net external debt amounting to a mere 8 percent of GDP. The amount of foreign exchange reserves continues to significantly exceed the level expected and deemed safe by investors.

The decline in net lending is mainly due to the larger government deficit, which rose sharply as a result of decreasing tax revenues and significant healthcare procurements, while the private sector’s financial savings increased. Within the increase in household savings due to a decline in consumption and stronger precautionary motives, a rise in retail government securities holdings, shifting towards longer maturities, reduce external vulnerability. Meanwhile, the corporate borrowing requirement also declined.