21 July 2023
In 2023 Q1, a major change took place in external balance developments: the current account deficit in the quarter declined to 3.4 percent of GDP. The more favourable indicator is attributable to the decline in the trade deficit, and within that, primarily to the adjustment of domestic sectors and an improvement in terms of trade. The net external debt ratio increased slightly, but it is still low. International reserves were at historically high levels.
In 2023 Q1, the seasonally adjusted quarterly deficit in the current account balance, which reflects short-term developments, fell significantly to 3.4 percent of GDP from 8.9 percent in 2022 Q4. The improvement in external balance indicators, which is also generally seen in the countries of the region, is attributable to the increase in the trade balance. The significant deficit of previous quarters turned into a surplus of over EUR 1 billion in 2023 Q1, driven by a number of favourable developments. On the one hand, the adjustment of domestic sectors and the export growth led to a growing surplus of non-energy components. On the other hand, there was a significant improvement in terms of trade resulting from a drop in energy prices at the beginning of the year. Eventually, surplus on trade in services also increased substantially, due in part to the recovery in tourism, and now exceeds pre-pandemic levels.
The decline in net borrowing took place against the backdrop of an improving net position in the private sector, which was partly offset by the growing government deficit. Rising financial savings by households and companies were mainly due to subdued consumption and investment, but it was also supported by increasing corporate profits. More moderate VAT revenues resulting from lower consumption, the compensation of the effects of higher energy prices and the increase in interest expenditures were the main contributors to the high deficit of the general government at the beginning of 2023.
In early 2023, external net borrowing was primarily funded by debt-type financing, resulting in a slight increase in external debt ratios. Nevertheless, net external debt, which corresponds to 12.5 percent of GDP, is still low. At the end of the first quarter, international reserves were close to their historical high, i.e. nearly EUR 40 billion, still significantly exceeding the level of short-term external debt, which is closely monitored by investors.