Current Account - Domestic Demand-Driven External Balance Worsening Continued In Q4

Current account posted a deficit of EUR 349 million in Q4, down from the 251 million positive balance a year earlier. This has been the second quarter with a negative balance since 2014 Q2, and the largest negative quarterly figure in a decade.

current account balance (eur million)

Source: NBH, Concorde

Financing capacity of the economy (eur million, 4q cumulative)

Source: NBH, Concorde

The net external financing capacity of the economy was a seasonally adjusted 1.9% of GDP, down from 3.6% in 2017 Q4 (top-down approach).

 

The deteriorating trend in the net financing capacity has continued, based mainly on a deterioration in goods balance – a reflection of strong domestic demand led by investment and consumption activity and worsening external demand environment.

The seasonally adjusted current account rose modestly to EUR -25 million from -68 million in Q3, down significantly from the peak seen in 2016 (1,851 million).

current account and components, sa

Source: NBH

The current account balance of 2018 Q4 was supported by strong services and slightly deteriorating transfers balances. Primary income balances remained broadly in line with figures during the last 8 years, despite the improvement in coupon payments on debt instruments and loans.

FDI flows have been strong, reaching EUR 3.7 billion in the previous one years’ time. FDI has been accompanied by a rising profitability of foreign-owned businesses and their decision to leave a rising proportion of their profit in the country – hence a huge surplus of reinvested earnings.

NET foreign direct investment (eur million, 4q cumulative)

Source: NBH, Concorde

The net external debt has stopped dropping further during the quarter, as the current account posted its second deficit in a row. The latest, 2018 Q4 figures showed EUR 11.6 billion, down meaningfully since the peak in 2011 (EUR 55.3 billion). We expect to see further net repayment of external liabilities, given the strong non-debt generating financing and the likely positive external balance in the years to come.

NET external debt (eur million)

Source: NBH, Concorde

The net financing position of the economy has been significantly positive for eight years now, which led to the fact that the GDP-proportionate net debt fell from the peak of 57% in 2009 to 8.8% at the end of Q4.

The MNB has significantly revised down its figures for the current account figures in previous quarters starting in early 2017. The current account has deteriorated since the previous estimate by EUR 496 million for 2017 and EUR 767 million in 2018 Q1-Q3. The revisions were caused by income and goods balances.

Looking ahead, we see this year’s current account surplus to be EUR 0.7 billion and a modest 0.75 billion next year.

gross external debt (eur million)

Source: NBH, Concorde

The gross external debt of the economy (exclusive of intercompany loans) rose slightly to EUR 74.5 billion (58% of GDP) from 73.5 billion at the end of Q3. The rise can be explained by a similar sized external debt issuance by the ÁKK that it would very likely use for financing some of its maturities this year. The government does not intend to issue fx debt this year.

The past four years brought a steep drop in the short term debt of the economy. Debt due within a year was EUR 17.1 billion at the end of Q4, with international reserves equaling 27.4 billion at the same time.

external debt due in a year (eur million)

Source: NBH

 

 

 

 

 

 

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
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MEMBER OF THE CONCORDE GROUP

 

 

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