Major improvements in external balance indicators of the Hungarian economyPrint
Budapest, 6 January 2021 – In 2020 Q3, the current account balance showed the highest quarterly surplus of the past three years, resulting in a rise in net lending to 2.4 per cent of GDP – considerably exceeding the level observed in 2019. While net FDI inflows continued, Hungary’s net external debt fell to 7.4 per cent of GDP. Foreign exchange reserves continued to significantly exceed short-term external debt, by more than EUR 10 billion.
The four-quarter current account deficit declined to 0.2 per cent of GDP in 2020 Q3, while net lending rose to 2.4 per cent of GDP. All three factors on the real economy side contributed to the improvement in the external balance indicators. The increase in the trade surplus was attributable to the growth in exports due to the upturn in external demand and industrial production as well as to the more subdued imports in view of the decline in domestic demand and a further improvement in the terms of trade. As a result of the lower profits of foreign-owned companies, the deficit of the income balance continued to decrease, while the rise in EU funding improved the external balance position of the economy through the transfer balance.
According to financing data, net FDI inflows continued in Q3 as well, while the net external debt indicator fell to 7.4 per cent of GDP. Foreign exchange reserves grew to a greater degree than short-term external debt, and thus FX reserves continue to significantly exceed the level expected and deemed safe by investors (by more than EUR 10 billion).
The increase in net lending is primarily attributable to the high net lending of the private sector, while the deficit of the general government rose further due to the containment and economy protection measures as well as to the decline in tax revenues. The decrease in consumption and the strengthening of precautionary motives continue to keep households’ financial savings at a high level, and corporate net borrowing also fell considerably in Q3.