INSTANT VIEW - Hungary posts C/A surplus in 2009 (4)

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(Adds comment by Goldman Sachs on page2)
Hungary posted a surprisingly large current account surplus of EUR 456 million in the fourth quarter of 2009, bringing the full-year balance to EUR +186 m, the first positive full-year figure since 1995.György Barta, CIB Bank, Budapest

“This morning’s Q4 current account data showed an above-consensus balance (EUR 456 million), which brought the full-year result to a surplus of EUR 186 m (which is the first positive balance since 1995), which is +0.2% of GDP, close to our annual forecast. Seasonally-adjusted external financing capacity also remained in the black at 3.6% of GDP, 9 percentage points better than at end-2008."

“The figure supports Hungary’s risk assessment, although the structure of the trade surplus (the main driver of the balance) also points to weak domestic demand, which is a negative from a growth perspective."

“Nevertheless, export and import figures already pointed to slight quarter-on-quarter rise in the trade turnover, which is a positive element. Our forecasts and the central bank's projections both show that external balance indicators could remain at favorable levels this year as well, especially compared to the more extreme deficit levels seen only a few years ago. Debt levels, on the other hand, are still rather high based on a regional comparison)."

Zsolt Kondrát, MKB Bank, Budapest

“The biggest surprise of the Q4 current account was that actually how little surprise it caused. Though the headline is moderately better than consensus and our slightly more upbeat forecast this was basically down to EU transfers (EU subsidies) while the goods and services balance and the income balance was very close to our expectation."

“Thus we do not change our forecasts materially, we expect EUR1.9Bln current account surplus this year and EUR 1.6 bln in 2011."

“The main driving force is foreign trade as we do not expect a big turnaround in global growth patterns and sluggish eurozone and domestic growth will help to maintain the high order of magnitude of the foreign trade surplus reached last year."

Eszter Gárgyán, Citi, Budpest

“The 4Q09 Current Account balance came out stronger than our expectations, but the downward revision of previous quarters’ balance drove the annual surplus for 2009 lower to EUR 186m (0.2% of GDP), which lags our expectation of a EUR 600m (0.6% of GDP) surplus for 2009."

“The downward revision in current account balance was largely owing to an upward revision in imports, which has been offset by the narrowing of the statistical gap registered as net errors and omissions (NEO). This indicates that the downward surprise in current account balance is related to technical factors, while the external financing capacity of the economy was not affected by this revision."

“The sharp adjustment in the trade and service balance - reflecting the collapse in domestic demand - has improved Hungary’s external financing position by over EUR 10bn from 2008 to 2009, as the external financing need (including NEO) of EUR 9.4bn in 2008 has turned into EUR 0.8bn external financing capacity in 2009."

“The positive external position reduces the vulnerability of the currency and is likely to encourage the MPC to cut rates further. Nonetheless, net external debt has increased to EUR 83bn (86.4% of GDP) by end 2009 (up from EUR 79bn in 2008) owing to the rise in public debt. Banks’ external debt has declined from EUR 30bn in 2008 to EUR 26bn by June 2009, but remained flat in 2H09. The high external debt level leaves the economy vulnerable to refinancing risks if external conditions turn severe."

“As the weaker Current Account surplus is largely owing to the narrowing in the statistical gap, we may revise our headline CA forecasts downwards reflecting the improvement of the statistics. This, however, does not change the fundamental picture of the country’s external positions."

“We expect the CA to turn into deficit in 2010 as domestic demand starts to recover in 2H, which is likely to be covered by inflows registered in the capital account eliminating the external financing need of the economy."

“Besides a balanced current account, we expect higher outflows in the financial account as household FX loan portfolio unwinds and domestic interest rates decline further, which is likely to deliver a gradual weakening in the currency in the next 12-18 months."

“We expect the base rate to bottom at 5.00% under our base scenario, but we would not rule out rates to fall even to 4.50% if fiscal risks remain contained after the elections and risk appetite remains strong."

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