Hungary's public debt-to-GDP continues to fall, C/A surplus widens further

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More arguments for forint’s strength: Hungary’s public debt-to-GDP continues to fall, C/A surplus widens further

Hungary’s general public deficit was 2.6% of GDP vs. the 2.9% of GDP goal of the government. This figure means that 2014 was the first year since 1990, when the budget was relatively tight in an election year. The main reasons of the low deficit are the sectoral taxes (like banking, energy, telecommunication tax etc.), the higher personal income tax and VAT revenues. The former improved thanks to the increasing employment, while the latter thanks to the rising household consumption and the whitening of the economy. The good base suggest that government will be able to keep budget deficit around 2.5% of GDP in 2015 as well, but we have to highlight that there are some increasing debt for example in the healthcare sector, which has to be adjusted in this year, so the budget has to be kept tight in this year as well. The gross public debt decreased from 77.3% of GDP in 2013 to 76.9% of GDP in 2014, so the slightly decreasing trend has remained, despite of the quite week HUF level at the end of the year. We expect that gross public debt may moderate to around 76% at the end of this year.

These positive news including the continuously high trade and current account surplus of Hungary pushed the EUR/HUF to around 298, which places the question that may the HUF strengthen further? We think that the National Bank of Hungary is not really happy with the current level of the HUF. The governor of the NBH highlighted that further rate cuts may come, which confirms our view that the NBH would like to see EUR/HUF around 305 and 310. Although now the international sentiment is quite positive and in a no news environment HUF may rather strengthen further, we don’t expect substantial appreciation from the HUF. We see strong resistance level around 298 and 296; the former has been tested already two times. We find too optimistic the current environment, how the market looks on Greece and Ukraine possible insolvency problem, on the postponement of US rate hike etc. Even in this relatively ideal situation the EURHUF stuck around 300. In the short-term no relevant news will be published from Hungary, so the international movement may drive the EURHUF, but we expect rather a side move in the coming days.