Hungary Business Forecast Report Q1 2015

Business Monitor International
October 18, 2014
52 Pages - SKU: BMI5361177
Countries covered: Hungary

Hungary Business Forecast Report Q1 2015

Core Views

Having been propped up by fiscal stimulus in 2013 and 2014, realGDP growth in Hungary will slow substantially in the coming quartersas government spending is scaled back. Hungary's domestic demandrecovery will trail that of its Central European peers due in part toa crippled banking sector, while external demand will remain weakon the back of a stalled eurozone recovery.

We believe that the threat of EU structural funding cuts – whichHungary has become increasingly dependent on – will be sufficientmotivation for the government to pursue an austerity programmeto keep the country's deficit within EU limits in the coming years.

However, public debt will remain well above emerging Europeanaverages, and Hungary will remain in a precarious fiscal positionwith minimal resilience to shocks.

Hungary's current account surplus peaked in 2013 but will remainsizeable in the coming years, averaging 3.7% of GDP between 2015and 2017. We forecast a long-term narrowing of the surplus on theback of weak external demand and a gradual but sustained loss ofcompetitiveness.

Rising domestic inflation and developed state interest rate hikes willforce the Hungarian national bank to hike rates by end-2015, earlierthan its intended goal of 2016. The bank's pro-growth stance andpolicy coordination with the government pose minimal risks in theshort term, as global monetary conditions remain loose. However,these factors will damage its credibility over the long term, underminingits ability to achieve price and financial stability.

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

Major Forecast Changes

No major forecast changes.



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