Hungary's Varga says current account surplus helps mitigate risks

Hungary's Varga says current account surplus helps mitigate risks

Hungary’s central bank governor, Mihály Varga, highlighted the role of a growing current account surplus in mitigating economic risks during his remarks at the IMF Spring Meeting in Washington. The surplus reached 2.2% of GDP in 2024, driven by declining energy and income balance deficits, improved fiscal discipline, and strong net foreign direct investment (FDI) inflows. This external resilience, Varga noted, supports financial stability amid global uncertainties, including geopolitical tensions and potential U.S. tariff hikes that could reduce Hungary’s growth by 0.5–0.6 percentage points.

The surplus reflects a broader improvement in Hungary’s external position, with net external debt falling to nearly 10% of GDP by year-end 2024, remaining historically low. International reserves stood at €44.6 billion, exceeding short-term external debt by nearly €10 billion, a key indicator of external sustainability. Varga emphasized that these fundamentals, combined with a surplus above regional averages, provide a buffer against external shocks.

Despite these strengths, inflation remains a challenge. The National Bank of Hungary (MNB) raised its 2025 inflation forecast to 4.5–5.1% in April 2025, citing risks from tariffs, services, and food prices. However, inflation began declining in March 2025, and Varga reiterated the central bank’s commitment to a “disciplined and patient” monetary policy to achieve sustainable price stability. The MNB maintained its benchmark rate at 6.5%, the highest in the EU, and signaled no rate cuts for the foreseeable future.

The surplus’s contribution to stability contrasts with domestic challenges, including a projected 1.0% GDP growth for 2025 due to weak consumption and investment. Varga’s remarks underscore the central bank’s focus on balancing external resilience with domestic economic rebalancing.