Four-quarter net lending rises to 1.2% of GDP in Q1 - MNB

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The impact of the coronavirus pandemic was already felt in the developments underlying the external balance indicators, the National Bank of Hungary said on Wednesday in a quarterly balance of payments report on Wednesday.

Net lending in Q1 amounted to EUR 569 million, which was a result of the decline in the current account balance to practically zero, and thus the net lending was exclusively attributable to the surplus of EUR 567 mln on the capital account.

The trade surplus shrank in Q1, mainly due to a decrease in the goods balance and - to a lesser degree - to the decline in the services surplus due to the pandemic. The services balance continues to be a major contributor to the trade surplus although the surplus was down in Q1 because tourism services declined in March.

The change in volume was the main contributor to the decline in the trade balance. Export and import volumes were significantly lower in Q1 than in the previous periods. The volume of exports fell to a low level unseen since 2013. At the same time, global demand concerns resulted in a fall in the prices of energy and thus in an improvement in the terms of trade.

The income balance deficit kept declining in Q1, primarily due to the lower profit of foreign-owned companies. The four-quarter deficit on the income balance dropped to 4.4% of GDP in Q1.

The rise in the transfer balance surplus mainly reflected the increasing absorption of EU funds. In early 2020, the transfer balance surplus expanded to 2.1% of GDP, contributing significantly to maintaining Hungaryʼs favorable external balance position. Four-quarter EU fund inflows corresponded to 3.1% of GDP.

The financing side also indicated that four-quarter net lending was shifting into positive territory as a result of a decline in net external debt and significant FDI inflows. The net debt liabilities of the economy fell considerably, with the corporate sector as the main contributor, while the indicators for the state and the banking sector remained practically unchanged. In addition to the outflow of funds, revaluation and the increase in GDP also considerably reduced the net external debt.

The net external debt-to-GDP ratio was at 6.3% at end-March and was 1.8 percentage points lower than its end-2019 value. Outflows of debt liabilities resulted in a 0.6 percentage point decrease in the net external debt-to-GDP ratio, while revaluation effects improved the indicator by 1.1 percentage point.

Following a larger decline at the end of last year, Hungaryʼs gross external debt-to-GDP ratio continued to fall in Q1, reaching 50.2% of GDP at the end of March. The decrease in the indicator was primarily the result of a decline in the external liabilities of the general government, with this effect somewhat reduced by an increase in the gross debt of the private sector.