Budapest, 15 July 2020 – Hungary’s net lending increased to 1.2 per cent of GDP in 2020 Q1 and remains outstanding in the region. The current account balance did not change significantly, due to a moderately decreasing trade surplus and a declining income deficit. Hungary’s net external debt fell further to 6.3 per cent of GDP, amid considerable FDI inflows. Foreign exchange reserves continue to substantially and consistently exceed short-term external debt.

Hungary’s four quarterly net lending rose to 1.2 per cent of GDP at the beginning of 2020, while its current account balance remained at about the previous quarter’s level. The trade surplus dropped moderately amid still increasing household consumption despite the coronavirus, as well as waning external demand. This effect was offset by a smaller income deficit attributable to the lower profitability of foreign companies, with the balance of interest paid abroad stabilising at a low level. The extended use of EU transfers also contributed to the improvement in Hungary’s external position.

In addition to increasing net lending, net FDI exceeded EUR 1.2 billion in 2020 Q1, leading to a further decrease in net external debt, which dropped to 6.3 per cent of GDP. Hungary’s short-term external debt amounted to EUR 19.3 billion in March 2020, and thus the EUR 25.8 billion worth of foreign exchange reserves continued to significantly exceed the safe level expected by investors, by more than EUR 6 billion.

The improving net lending position is mainly attributable to private sector savings, while the general government deficit remains moderate. The intense outflow of income amid the decelerating, but still strong dynamics of household consumption contributed to increase in financial savings. In 2020 Q1, the households’ government securities portfolio continued to grow, albeit at a declining rate, primarily as a result of an increase in holdings of MÁP+ government securities, which reduces Hungary’s external vulnerability.