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Hungary external financing position "strong" after C/A surplus surge, says City

Hungary's external financing position is strong after its current account surplus rose to 2.1% of GDP last year, London-based emerging markets analysts said after the central bank on Thursday released the much stronger-than-expected current account figures from the 4th quarter of 2010.

The current account surplus was €366 million in the last three month of 2010, more than twice the consensus, taking the cumulative surplus to €2.032 billion for 2010 as a whole.

Analysts at RBC Capital Markets, a major global investment banking group, said after the data release that given the weakness of import demand and the "booming" exports to Germany, the external accounts have improved considerably over recent years - the current account was in deficit by more than 7% of GDP as recently as 2008.

Hungary's net external financing position - defined as the aggregate of the current and capital accounts - is strong, with a surplus of €875 million in Q4 2010, equivalent to more than 4% of GDP. All this is HUF supportive over the medium term, London-based emerging markets analysts at RBC Capital Markets said.

Analysts at JP Morgan in London said they expect Hungary's current account surplus to decline to around 1.2% of GDP this year, but even this is an upward revision of 0.5 percentage point from their previous forecast.

While improving corporate profitability should lead to further widening in the income deficit, that deterioration is likely to be smaller than previously thought due to additional taxes levied on the corporate sector, with the latest inflation data suggesting that these taxes are not being passed on to consumers.

Rising EU transfers will continue to support surpluses on current transfers and the non-financial capital account. "We look for current account surpluses to be sustained through 2012 as production and exports from recent investments into the automotive sector come on tap", JP Morgan said.