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Hungary: Country Economic Forecast: 26 Jan 2012

Oxford Economics
January 26, 2012
10 Pages - SKU: OFE6784639

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Countries covered: Hungary

The first week of 2012 saw a sharp sell-off in Hungarian assets, reflecting fears of an external financing squeeze. At the heart of this were concerns relating to erratic policymaking that have affected relations with official creditors. Recent comments from senior officials indicate a more conciliatory tone towards negotiation with the IMF. However, the issues of dispute (judicial and central bank independence) are significant and we expect talks to be protracted. Our baseline case is for a stand-by arrangement to be reached in March/April, a view supported by the fact that near-term external funding needs are negligible. Therefore, we expect further volatility in Hungarian assets before an IMF deal materialises, followed by a general improvement in sentiment in 2012H2. The MPC surprised the markets by opting to hold interest rates at 7% in January, following two consecutive 50bp hikes. In the press conference, governor Simor indicated that this was a close split decision with some council members voting for a further 50bp rise. Given our view that negotiations with the IMF are likely to be protracted, we expect the HUF to weaken further in February. This is likely to trigger a further 50bp rise in rates before a relief rally in 2012H2 facilitates monetary easing, with rates forecast to end 2012 at 6.5%.

Hungary:
The following represents a general Table of Contents outline for the Country Economic Forecast. The actual report may cover any or all of the topics listed below.
1. Highlights and Key Issues - four/five paragraphs of analysis covering the main economic and political issues contained in the subsequent Economic Overview
2. Forecast Table showing % changes for the country - with 2 years of historical data and 4 years of forecast data for the following:: Domestic demand; Private consumption; Fixed investment; Stockbuilding (% of GDP); Government consumption; Exports of goods and services; Imports of goods and services; Consumer prices; Current account balance (US$ and % of GDP); Government budget (% of GDP); Short-term interest rates (%); Long-term interest rates (%); Exchange rate (vs. US dollar); Exchange rate (vs. euro)
3. Economic Overview - two pages of events-driven analysis highlighting the most recent economic activity and, where relevant, political developments of the country, detailing significant changes to Oxford Economics' forecasts
4. Charts and Tables - covering a full range of economic developments relevant to the time period covered. These could include such topics as:: Contributions to GDP growth; Monthly industrial output; Unemployment rate; Retail sales; Prices and earnings; Consumption and investment; Government balance and debt; GDP and industrial production; Monetary base and bond yields
5. Background Information on the country: One or two pages of text covering the main historical political and economic factors that determine the country's current position
6. Key Facts on the country: Map of the country; Key political facts; Long-term economic and social development; Structure of GDP by output; Long-term sovereign credit ratings and outlook; Corruption perceptions index- latest year; Structural economic indicators; Destination of goods' exports -prior years; Composition of goods & services exports - latest year

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Hungary: Country Economic Forecast: 26 Jan 2012

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