Current Account - Pre-election Spending Weighs On External Balance, Improvement Expected

Current account posted a surplus of EUR 156 million in Q3, down from the 999 million balance a year earlier.

current account balance (eur million)

Source: NBH, Concorde

The net external financing capacity of the economy was a seasonally adjusted 2.5% of GDP, down from 3.4% in Q3 (top-down approach).

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

Source: NBH, Concorde

There is a visible deteriorating trend in the net financing capacity, which can be chiefly put down to the fact that the recent rise in the budget deficit (in the first three quarters, mainly linked to the accelerated absorption of EU funds and elections-linked budget spending) and a rise in households’ consumption demand drove up the import bill significantly.

The seasonally adjusted current account fell to EUR 312 million from 589 million in Q2, down significantly from the peak seen in 2016.

current account and components, sa

Source: NBH

The current account balance of 2018 Q3 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 3.36 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)