As a result of larger-than-expected GDP growth in the first quarter, the National Bank of Hungary (MNB) has revised the end-March debt-to-GDP ratio to 74.3% from 74.6%. The country’s net financing capacity has diminished, which can be regarded good news in light of the fact that greater corporate activity also contributed to this decrease.
The financing capacity of the Hungarian economy was 2.8% of GDP in the four quarters to Q1 2017. This means net lending of the rest of the world, i.e. Hungary’s economic agents delivered that much more funds to aboard than how much they received from there. The 2.8% financing capacity means that the Hungarian economy is still working off its previously accumulated debt. At the same time, this is the smallest figure we have seen in the past almost five years, which implies that as domestic absorption (consumption, investment) grows, the rate of debt reduction could moderate.
The process gained strong contribution from the fact that households net financial savings decreased, but it is even better news that the corporate sector’s financing capacity has finally and unequivocally sunk into negative territory. This means that companies are raising funds more actively, which suggests bigger investment activity.
According to financial accounts data, net lending of general government amounted to -1.8% in the four quarters to Q1 2017. The balance has clearly deteriorated over the last six months, but the rate is not dramatic at all. Gross government debt stood at 74.3% of GDP at the end of March, down 0.3 percentage point compared to the preliminary figure. The downward revision most likely stems from a larger-than-expected Q1 GDP growth. When the preliminary financial accounts data were published, only estimates for Q1 growth were available.
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