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Wednesday, July 2, 2008

Hungary's Q1 2008 Current Account Deficit

Hungary's current account deficit came in at EUR 1,160 million in the first quarter of 2008, according to preliminary figures. This was up from a slightly downward adjusted EUR 1,094 m in Q4 2007, according to data from the National Bank of Hungary (NBH). The seasonally adjusted EUR 1,274 m current account gap is down from the 1.3billion euro deficit recorded in the fourth quarter of last year.

In Q1 2008 Hungary’s net external financing requirement (i.e. the balance on its combined current and capital accounts), fell compared with the last quarter. Hungary needed 367 million euros (92 billion HUF) and 729 million euros, or 2.2% of GDP, (after adjusting for seasonal effects) compared with 4.6% of GDP in Q1 2007. The net financing requirement, derived as the combined current and capital account balance using the bottom-up approach, amounted to EUR 1,375 million (equal to HUF 353 billion).

Current account

In Q1 2008, the current account deficit was 1,160 million euros (1,274 million euros seasonally adjusted). The seasonally adjusted deficit continued to fall compared with the previous quarter. Improvements in the combined balance on the income and transfer accounts accounted for most of this fall, and these were, in turn, mainly explained by an increase in funds from the EU. In terms of the real (rather than the financial) economy, the goods trade remained in surplus, at 681 million euro seasonally adjusted (and at 744 million euro unadjusted. The surplus on services was 269 million euros, seasonally adjusted, (and 139 million euros, unadjusted). Compared with the previous quarter, the trade balance improved and the surplus on services increased on a seasonally adjusted basis.

In terms of services themselves, the seasonally adjusted travel surplus was 294 million, while other services registered a seasonally adjusted 71 million euros deficit.

Looking at the balance on the income and transfer accounts, the seasonally adjusted deficit on income on debt amounted to 684 million euros, and negative income on equity was 1,452 million euros. The deficit on income on debt continued to rise, while the deficit income on equity fell slightly compared with 2007 Q4. A significant surplus was registered on compensation of employees, due largely to the introduction of a new methodology. I would say one of the structural difficulties with the Hungarian balance of payments is the growing detach we can see in the chart below between the growing surplus on the goods and services side and the increasing deficit on the income side.

Looking at fourth-quarter transactions with the European Union, the balance of current transfers was a deficit of 52 million euros, while capital transfers were in 795 million euro surplus. The balance of capital transfers to and from EU institutions was in a surplus of 743 million euros.


There was a net inflow of 1,699 million euros in inward and outward non-debt capital transactions. The value of outward direct investment transactions in equity capital by Hungarian residents was 84 million euros and reinvested earnings amounted to 342 million euros. Inward transactions by non-residents amounted to 292 million euros and reinvested earnings amounted to 1,366 million euros. Portfolio investment transactions in equity securities showed a net inflow of 468 million euros. Purchases of shares abroad by Hungarian residents amounted to 521 million euros (outflow) and purchases of Hungarian shares by non-residents amounted to 989 million euros (inflow). The balance of debt generating financing was 324 million euros. For other FDI – included in foreign direct investment flows – related to direct investment by Hungarian residents there was an inflow of 82 million euros and other FDI related to direct investment by nonresidents in Hungary showed an outflow of 864 million euros.

Reserves and debt

Central bank foreign exchange reserves were 16.8 billion at end-March 2000. Whole-economy gross foreign debt was up`3.8 billion euros over the opening stock reported for 2008. Gross foreign debt, including other investment capital recorded within direct investment, rose by 3.6 billion euros. Hungary’s net foreign debt rose by 1.0 billion euros, and by 0.2 billion euros including other FDI capital recorded within direct investment. Non residents’ holdings of forint-denominated government securities amounted to 11.7 billion euros at the end of Q1, down 0.9 billion euros on the opening stock for 2008.

Whole-economy net debt, excluding other capital recorded within direct investment, was 47.8 billion euros at end-March 2008 (46.8% of Hungarian GDP). Including other investment capital recorded within direct investment, Hungary’s net foreign debt amounted to 49.0 billion euros (48.0% of GDP). Compared with the opening stock calculated using the new methodology, the net debt of general government and the MNB was down 1.3 billion down at the end of Q1 2008.

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