Hungary is looking ahead to incalculable Greek events with healthy fundamentals

HUNGARY - In Brief 28 Jun 2015 by Istvan Racz

---

Most recent events with regard to Greece have proven to be genuinely incalculable, and so it may continue in the forthcoming days and weeks. As the potential capital market consequences on Europe and perhaps even more on the eastern side of the continent may be significant, it is good to remember at the outset that Hungary is looking ahead to possible negative scenarios with quite healthy fundamentals. These include: - reasonably strong real GDP growth (0.8% qoq, 3.3% yoy sda in Q1); - massive external surpluses (current account surplus at 7.6% of GDP, current account + net EU transfers 11.4% of GDP, net external financing capacity 6.1% of GDP in Q1); - considerable amounts of external liquidity (international reserves at EUR 37bn or 37% of GDP at end-May, up EUR 2.5bn since end-2014, with external liabilities falling due within one year at EUR 22 bn at end-May); - an improving fiscal balance (central government cash deficit down to 3.8% of GDP in Jan-May from 5.3% of GDP in the same period of 2014, seemingly high due to seasonal factors, but well on the way towards the targeted general government deficit of 2.4% of GDP or lower in full-year 2015, after 2.6% of GDP in full-year 2014); - fiscal reliance on transfers from the EU has fallen (incoming net transfers, part of the cash balance of the central government budget, down to 1.2% of GDP in Jan-May from 2.3% of GDP in Jan-May 2014); - moderately declining trend of the gross government debt ratio (76.9% of GDP at end-2014, down from 77.3% at end-2013 and from an end-year peak of 81% at end-2011); - FX mortgage loans have been converted into HUF loans by end-April, so exchange rate risk on retail bank loans is essentia...