Budapest, 20 January 2022 – In line with the trends observed in several countries in the region, Hungary’s current account balance declined in the third quarter of 2021. This decline is likely to be temporary, as the goods balance is expected to improve from the second half of 2022 in parallel with the weakening negative impacts of predominantly external factors and stronger exports thanks to Hungary’s high investment ratio. Hungary’s net external debt stabilised at a low level, while international reserves rose considerably and thus significantly exceed the expected level.
In the third quarter of 2021, the Hungarian economy’s four-quarter current account showed a deficit of 2 percent of GDP and moderate net borrowing. The external balance indicators declined at a similar rate as observed in the other countries in the region, in conjunction with the deterioration in the goods balance which was mainly due to external factors, as the global semiconductor shortage and weakening external demand resulted in moderate growth in exports, while the surge in fuel prices entailed a rise in imports.
In parallel with the expected normalisation of these factors in 2022, the external balance may gradually improve. The temporary nature of the fall in the current account is also supported by the fact that the increase in investments and inventory accumulation as a proportion of GDP also contributed to the decline in net exports, whereas later, upon implementation of the new export capacities and the reduction of accumulated inventories, these factors may have a positive impact on the trade balance. The steadily significant drawdown of EU funds improved the external balance of the economy via the transfer balance.
The decline in net lending was mainly connected to the fall in the private sector’s financial savings, while the budget deficit decreased slightly: the net government position was improved by the higher tax revenue linked to the pick-up in demand resulting from the reopening of the economy, while growing investment, inventories and consumption reduced the private sector’s financial savings. Households’ savings in government securities decelerated slightly, but still contribute significantly to the low external vulnerability of the economy.
Based on the financial account data, net FDI inflow was strong in the quarter under review. Net external debt rate stabilised at a low level, and due to a robust rise in foreign exchange reserves, Hungary’s international reserves exceeded the level expected and deemed safe by investors by EUR 13 billion.