17 January 2019
Hungary’s net lending started to rise slightly in 2019 Q3 and its level remained above those observed in the region. Due to an increase in the trade surplus, the current account balance also improved, with growing exports playing a dominant role, accompanied by a dynamic expansion in industrial production. In addition to the continued inflow of foreign direct investment, Hungary’s net external debt declined further.
The economy’s four-quarter net lending rose to 1.1 percent of GDP in 2019 Q3 and, in contrast to the decrease in the previous period, the current account balance also improved. Rising external balance indicators primarily reflected an increase in the trade surplus, which was also supported by robust growth in industrial production and a decline in inventories. Meanwhile, historically strong investment activity contributed to high import growth. The absorption of EU transfers slowed down in the quarter, and the income balance also continued to improve slightly.
Based on financing data in the third quarter, there was a continuous inflow of net direct investment despite outward investment by resident companies in 2019 Q3. Net external debt declined further. The latter mainly reflected an increase in foreign exchange reserves, due in part to revaluation effects. As a result, the external debt-to-GDP ratio fell to 8.6 percent. The significant increase in foreign exchange reserves exceeded the rise in short-term external debt linked to EU transfers. As a result, international reserves amounted to EUR 28.4 billion, continuing to significantly exceed the level expected and considered safe by investors by over EUR 9 billion.
Based on developments in savings, the improvement in external balance indicators in the third quarter was related to a decline in companies’ net borrowing. Domestic corporations decreased their inventories significantly, thus improving their net lending position. Households’ net financial savings remained high, amounting to around 5 percent of GDP. The still high saving was supported by the retail government security programme, including the introduction of MÁP+. The increase in households’ security holdings has contributed to a reduction in Hungary’s external vulnerability through forint and foreign currency bond repurchases.