Further improvement in the BOP in Q2

HUNGARY - In Brief 15 Aug 2023 by Istvan Racz

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The preliminary balance of payments data for June was reported today. A few days earlier, KSH released some very positive merchandise trade numbers for the month already. But it is normally more efficient to look at the BOP, which offers the full picture, rather than just providing a partial view of cross-border transactions by making references to the trade balance. So, here is a summary table on the main BOP balances in H1 2023, together with the data of H1 2022 and the breakdown of this year's first half into Q1 and Q2, all expressed as a percentage of GDP (sources: MNB, KSH and our own estimates): So, it looks like the trade balance, the current account balance and the net financing requirement improved substantially in H1 total, compared to one year earlier. However, net factor income, mainly earnings of FDI and interest on debt, net capital transfers, essentially grants from the EU, and even net FDI flows did poorly. And so, the basic balance, Hungary's net financing need from the market, improved only to a moderate extent. However, Q2 data was really impressive. EU funds and investment income did not improve from Q1 at all, and FDI flows were better on mainly seasonal basis. But the trade balance came out very much better than in Q1 and last year, and so the basic balance also improved impressively. Please, bear in mind that here we compare the preliminary Q2 2023 figures with final data for previous periods. In the final data for Q2, the errors and omissions deficit will likely be significantly lower, as usual. So, E&O for H1 2023 will not be a nice number anyway, but it may not be bigger at all in ratio terms than it was one year earlier.