19 October 2023
The external position of the Hungarian economy continued to improve in 2023 Q2, with the quarterly current account balance moving into a surplus of more than 1 percent of GDP. This significant positive shift reflected an improvement in the terms of trade, a contraction in domestic demand and, to a lesser extent, an increase in exports. The net external debt ratio rose moderately, and the gross debt ratio declined slightly. The stock of international reserves remained at historically high levels.
The seasonally adjusted quarterly current account balance, reflecting short-term developments, turned into a surplus of 1.1 percent of GDP in 2023 Q2, following a deficit of 2.1 percent in the previous quarter. The improvement in external balance indicators reflected an increase in the trade surplus. The trade surplus exceeded EUR 3.3 billion in the second quarter, driven by several factors. First, with energy prices falling at the beginning of the year, the terms of trade improved significantly compared to 2022. Second, imports fell significantly, associated with a general decline in domestic demand. Finally, the gradual increase in exports, mainly driven by battery and vehicle manufacturing, also contributed to the improvement in the trade balance.
The fall in net borrowing took place against a backdrop of rising private sector net financial savings, with the general government deficit rising slightly over the quarter. The improvement in the financial position of households and companies was primarily due to declines in consumption and investment, and inventories. In the high inflation environment, significantly lower-than-planned VAT receipts and higher interest expenditure contributed to the increase in general government deficit.
With inflows of debt liabilities and strong nominal GDP growth, the gross external debt ratio declined slightly, and the net external debt ratio increased moderately. Nevertheless, at 14.6 percent, the net external debt-to-GDP ratio remained low by historical standards. The stock of international reserves stood at a historically high level of close to EUR 40 billion at the end of the second quarter, continuing to be significantly above the amount of short-term external debt closely monitored by investors.