Hungary Business Forecast Report Q1 2014

Business Monitor International
October 29, 2013
51 Pages - SKU: BMI5144198
Countries covered: Hungary

Hungary Business Forecast Report Q1 2014

Core Views

With the Hungarian general election due to be held in early 2014, weexpect incumbent Prime Minister Viktor Orban’s Fidesz party to onceagain emerge victorious and maintain its majority in parliament. Theelectoral pact between the centre-left Socialists and Egyutt 2014, ledby former PM Gordon Bajnai, may cause Fidesz concern in someconstituencies, but such is the governing party’s lead in opinion pollswe do not believe it will result in a change in government.

With Fidesz likely to retain power we expect broad policy continuity,with punitive corporate taxes propping up the state’s coffers, whilehouseholds emerge largely unscathed, with austerity measures andconsumer tax hikes unlikely.

The Hungarian economy will continue on a gradual path to recovery,bolstered by an improving export story. Key trading partnersin Central Europe are set to increase import demand in 2014 and2015, as is Germany, Hungary’s largest single export destination.

The Hungarian National Bank is set to continue its easing cycle inthe early stages of 2014, before increasing demand-side pressurespush up consumer price inflation in the latter part of the year, resultingin a halt to the cutting cycle.

Major Forecast Changes

We have revised up our forecast for real GDP growth in Hungaryin 2014, from 1.1% to 1.7% on the back of an improving consumerstory in Germany which will provide a notable boost to Hungariannet exports.

We have revised down our end-2014 policy rate forecast, from4.00% to 3.50%, as state-mandated cuts to household utility priceswill contain consumer price inflation, allowing rate setters more roomto cut rates in an attempt to boost domestic demand.

In spite of further cuts to the policy rate, we forecast a stronger forintin 2014 than we had previously, with our average forecast for theyear now HUF285.00/EUR, from HUF289.00/EUR previously.

Key Risks To Outlook

The Socialist/Egyutt 2014 electoral pact could perform better thanexpected in the Spring general election, potentially challenging Fideszfor a majority. With around half of all Hungarian voters undecided atthe time of writing we could see a sharp swing away from Fidesz,especially if the country’s nascent economic recovery begins to stall.

Deterioration in investor sentiment toward Hungary could result ina sharp currency sell off, eliminating the central bank’s scope forfurther monetary easing. This would result in not only inflation fixedat historic lows, but also household consumption remaining subdued,reducing the prospect of a strong economic recovery.



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