Hungary records huge current account surplus (2)

(Adds details, table)
Hungary’s external financing capacity (i.e. the combined surplus on its current and capital accounts) amounted to EUR 655 million (HUF 178 billion) in the fourth quarter of 2009, the central bank (NBH) has reported on Wednesday. After adjusting for seasonal effects, the country’s external financing capacity was 3.6% of GDP (EUR 844 million), improving by 9 percentage points and 0.3 percentage point relative to the end of 2008 and the previous quarter respectively.

The current account balance showed a surplus of EUR 455.7 million, which is a massive figure relative to the strong adjustment processes in the local economy. The market expected a surplus of EUR 200 m.

The surplus on real economic transactions continued to be higher than the deficit on the income account. Import expenditure and export revenue both exceeded the levels recorded in the previous quarter.

The balance of EU transfers, recorded as current and capital transfers, contributed EUR 1.1 billion to Hungary’s financing capacity.

The adjustment in the external balance is palpable in real economy transactions. The drastic shrinkage in domestic demand and the drying up of external financing funds led to a dramatic decline in the import of goods. Although exports also dropped markedly as a consenquence of the global crisis, the rate of the decrease was still smaller. Hence the EUR 4 bn surplus in the balance of trade in goods, against breakeven in 2007-2008.

A boost came from the fact that the balance of services, which tends to be favourable anyhow, showed a slightly larger-than-usual surplus

A major improvement was also brought about by an EUR 2 bn decline in income outflows. A possible reason for that could be that as foreign investors sold Hungarian bonds, they had to be paid less interest and that the conditions of the IMF credit were better than the terms a market-based financing.

The surplus on current transfers amounted to EUR 248 million in 2009 Q4, according to not seasonally adjusted data (current transfers typically do not exhibit seasonal fluctuations). As regards accrual-based transactions with the European Union in the period, the balance of current transfers showed a EUR 449 million surplus, and transactions recorded as capital transfers showed a EUR 617 million surplus.

On balance, capital transfers to and from EU institutions showed a EUR 1,066 million surplus in the balance of payments in Q4 as a balance of funds from and contributions to the EU.

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