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Hungary Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 52 pages

Core Views
Having been propped up by fiscal stimulus in 2013 and 2014, real GDP growth in Hungary will slow substantially in the coming quarters as government spending is scaled back. Hungary's domestic demand recovery will trail that of its Central European peers due in part to a crippled banking sector, while external demand will remain weak on the back of a stalled eurozone recovery. We believe that the threat of EU structural funding cuts – which Hungary has become increasingly dependent on – will be sufficient motivation for the government to pursue an austerity programme to keep the country's deficit within EU limits in the coming years. However, public debt will remain well above emerging European averages, and Hungary will remain in a precarious fiscal position with minimal resilience to shocks.

H ungary's current account surplus peaked in 2013 but will remain sizeable in the coming years, averaging 3.7% of GDP between 2015 and 2017. We forecast a long-term narrowing of the surplus on the back of weak external demand and a gradual but sustained loss of competitiveness. Rising domestic inflation and developed state interest rate hikes will force the Hungarian national bank to hike rates by end-2015, earlier than its intended goal of 2016. The bank's pro-growth stance and policy coordination with the government pose minimal risks in the short term, as global monetary conditions remain loose. However, these factors will damage its credibility over the long term, undermining its ability to achieve price and financial stability.

Alleged infringements of civil liberties in Hungary will leave the government ostracised from decision-making at an EU level. This isolation will pose little threat to government stability given the strong popular support the government enjoys, but it does pose a threat to Hungary's influence on regional policy.

Major Forecast Changes
No major forecast changes.

Table Of Contents

Hungary Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics .. 8
Becoming Increasingly Isolated8
Alleged infringements of civil liberties in Hungary will leave the government ostracised from decision-making at an EU level. This
isolation will pose little threat to government stability given the strong popular support the government enjoys, but it does pose a threat
to Hungary's influence on regional policy.
Table: Political overview8
Long-Term Political Outlook 9
Western Convergence Story Will Continue9
Our core view is for Hungary to continue to converge both economically and politically with Western Europe over the next decade.
The country will face substantial challenges, including the continuing rise of far-right parties, sustained poor relations between ethnic
Hungarian and minority groups, as well as rising fiscal pressure from an ageing population.
Chapter 2: Economic Outlook. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity .. 14
Growth To Slow As Fiscal Stimulus Removed..14
Having been propped up by fiscal stimulus in 2013 and 2014, real GDP growth in Hungary will slow substantially in the coming quarters
as government spending is scaled back. Hungary's domestic demand recovery will trail that of its Central European peers due in part to
a crippled banking sector, while external demand will remain weak on the back of a stalled eurozone recovery.
Table: GDP By Expenditure14
Fiscal Policy 16
Austerity To Hit Capital Expenditure16
Hungary will manage to avoid EU funding cuts by posting a fiscal deficit of 3.0% in 2015. However, the government's preference for
cutting capital over current expenditure will ensure that the country remains on a precarious fiscal path over the coming years.
Table: Fiscal Policy.16
Balance Of Payments 18
Weak Demand, Waning FDI To Narrow Current Account Surplus..18
Hungary's current account surplus peaked in 2013 but will remain sizeable in the coming years, averaging 3.7% of GDP from 2015-
2017. We forecast a long-term narrowing of the surplus on the back of weak external demand and a gradual but sustained loss of
competitiveness.
Table: Balance Of Payments..18
Monetary Policy 20
Rate Hike Unavoidable In 201520
Rising domestic inflation and developed state interest rate hikes will force the Hungarian national bank to hike rates by end-2015, earlier
than its intended goal of 2016. The bank's pro-growth stance and policy coordination with the government will damage its credibility over
the long term, undermining its ability to achieve price and financial stability.
Table: Monetary Policy..20
Exchange Rate Policy .. 22
HUF To Remain Regional Underperformer..22
Slowing growth, a dovish monetary stance and significant policy uncertainties will lead to net capital outflows and steady depreciation of
the Hungarian forint in the coming quarters.
Table: CURENCY FORECAST..22
Chapter 3: 10-Year Forecast. 25
The Hungarian Economy To 2023 25
Western European Economic Convergence To Continue25
We continue to hold a reasonably sanguine view on Hungary's real economic convergence prospects with Western Europe over the
long term. Economic reforms are likely to help to lift productivity and growth over the coming years. However, with the sustainability of
the eurozone project in question as a result of the sovereign debt crisis, Hungary's adoption of the common currency over our forecast
period remains in serious doubt.
Table: Long-Term Macroeconomic Forecasts25
Chapter 4: Operational Risk. 27
Operational Risk Index. 27
Operational Risk .. 28
Table: Operational Risk..28
Transport Network .. 29
Table: Emerging Europe - Transport Network Risks..30
Economic Openness.. 33
Table: emerging Europe - Economic Openness.34
Table: Top 5 Products Exported (USDmn), 2007-201335
Table: Europe - Top 5 Trade Partners Product Exports (USDmn), 2007-2012. 36
Chapter 5: Key Sectors.. 39
Oil and Gas 39
Table: Oil Production, 2018-2023..40
Table: Oil Production, 2012-2017..40
Table: Gas Production, 2018-202341
Table: Gas Production, 2012-201741
Infrastructure.. 42
Table: Construction and Infrastructure Industry Data, 2012-2017. 43
Table: Construction and Infrastructure Industry Data, 2018-2023. 44
Other Key Sectors 47
Table: Pharma Sector Key Indicators.47
Table: Telecoms Sector Key Indicators47
Table: Defence and Security Sector Key Indicators.47
Table: Food and Drink Sector Key Indicators48
Table: Autos Sector Key Indicators.48
Table: Freight Key Indicators..48
Chapter 6: BMI Global Assumptions.. 49
Global Outlook 49
Big Emerging Market Revisions.49
Table: Global Assumptions.49
Table: Developed States, Real GDP GrowtH, %..50
Table: BMI VERSUS BLOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 50
Table: Emerging Markets, Real GDP Growth, %.51

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