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Current account balance returns to surplus


Budapest, 13 April 2021 – Despite the effects of the pandemic, the external balance indicators of the Hungarian economy improved in 2020: a surplus was once again registered on the current account, while net lending rose to more than 2 percent of GDP. The net external debt ratio stabilised close to a historically low level. Hungary’s net lending exceeded the average level typical in the region in 2020 as well.

By the end of 2020, the four-quarter current account showed a modest surplus, while net lending increased to 2.1 percent of GDP. The favourable developments, which evolved in spite of the negative economic impacts of the pandemic, were driven by an improvement in the income balance and EU fund absorption, which was up on the previous year, also supported by growth in the trade surplus in the latter half of the year. The impacts of the pandemic on the economy in the first half of the year – the downturn in tourism, decelerating export dynamics due to supply constraints and the import demand of healthcare procurements – resulted in a deterioration in the trade balance. Due to the second wave of the pandemic, the surplus on the services balance fell in the second half of the year as well, but its effect was more than offset by the lower import demand stemming from decreasing domestic absorption, as well as by an expansion in exports in parallel with an upswing in industrial production and an improvement in the terms of trade. At the same time, net lending improved thanks to the decline in the income balance deficit, which is attributable to lower equity income, and the absorption of EU transfers, which exceeded that of the previous year.

Financing data suggest that, according to the underlying developments, foreign direct investment expanded by nearly EUR 2.4 billion in Hungary in 2020, while the net indicator did not change significantly in view of domestic companies’ increasing investment abroad. In December 2020, the net external debt ratio stabilised near the historical low of 8 percent. Foreign exchange reserves grew to EUR 33.7 billion, i.e. to a greater degree than short-term external debt, and thus FX reserves at the end of 2020 significantly exceeded – by more than EUR 12 billion – the level expected and deemed safe by investors.

Against the background of declining tax revenues due to the pandemic as well as the costs of public health protection measures and the funds spent on restarting the economy, the borrowing requirement of the government increased considerably. Nevertheless, this impact was offset by a rise in the private sector’s financial savings, as subdued consumption, the forced savings entailed by the containment measures and the strengthening of precautionary motives kept households’ financial savings at a high level, while the net lending of companies also increased.

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