Hungary Business Forecast Report Q1 2010 : Market Research Report

Hungary Business Forecast Report Q1 2010

Published by: Business Monitor International

Published: Oct. 30, 2009 - 60 Pages

Executive Summary: Will Fidesz Reverse Reforms?
Chapter 1: Political Outlook: SWOT Analysis; BMI Political Risk Ratings; Domestic Politics; Political Risk Profile To Improve Post-Election; The ongoing threat of early parliamentary elections remains the biggest risk to the legislative process in the near term.
Table: Hungary Political Overview
Chapter 2: Economic Outlook: SWOT Analysis; BMI Economic Risk Ratings; Economic Activity; Economy To Remain In Doldrums Through 2010; We maintain our view that Hungary will be unable to avoid a weak recovery, with real GDP set to expand by only 0.1% in; 2010 (following an estimated drop of 6.4% in 2009).
table: ECONOMIC ACTIVITY: Banking Sector; Government To Seek Greater Bank Oversight; Underlying stresses in Hungary’s banking system remain pronounced, and we maintain our view that the sector will; undergo a protracted period of low growth through 2010 accordingly.; Monetary Policy; HUF: Contagion Fears Could Spark Rapid Depreciation; The short-term outlook for the Hungarian forint is encouraging, with further appreciation expected through end year.
table: EXCHANGE RATE: Monetary Policy; Further Rate Cuts Ahead; The medium-term inflationary outlook in Hungary remains benign, and we hold to our projection for consumer price; inflation to come in at 3.0% by end-2009 (down from 3.5% at end-2008).
table: MONETARY POLICY: Fiscal Policy; Budget Deficit To Remain In Check Under Fidesz; We have revised up our end-2009 and 2010 Hungarian fiscal deficit forecasts, and now project the budget shortfalls; coming in at 4.4% and 3.8% of GDP, respectively.
table: FISCAL POLICY
Chapter 3: 10-Year Forecast: The Hungarian Economy To 2019; Euro-Adoption To Stabilise Economy; We continue to hold a reasonably sanguine view on Hungary’s real economic convergence prospects with the eurozone; over the long term.; tab le: HUNGARY Long -Ter m Macr oec onomic Forecasts
Chapter 4: Special Report: The World’s Fiscal Conundrum; Bleeding Red Ink Across The Globe
Table: WORLD GOVERNMENT EXPENDITURE INDICATORS
Table: WORLD GOVERNMENT REVENUE INDICATORS
Table: WORLD FISCAL BALANCE INDICATORS
Chapter 5: Business Environment: SWOT Analysis; BMI Business Environment Risk Ratings; Business Environment Outlook
Table: BMI Business and Operational Risk Ratings
Table: BMI Legal Framewo rk Ratings: Institutions; Infrastructure; Market Orientation
Table: Emerging Europe, Annual FDI Inflows
Table: BMI Trade Ratings
Table: TOP EXPORT DESTINATIONS: Operational Risk
Chapter 6: Key Sectors: Autos; Executive Summary; New car sales in Hungary fell 52% y-o-y to 39,429 units in H109, estimates from the Hungarian Car Importers; Association (MGE) have shown. BMI attributes this to a fall in domestic spending, and we expect the country’s GDP; to contract 6.4% in real terms this year.
table: Hungary Autos Sector — Histo rical Data And Forecasts: Infrastructure; Executive Summary; We continue to estimate the construction industry’s value for 2009 at HUF960bn (US$4.69bn).
Table: Hungary Const ruction Indust ry Data
Chapter 7: BMI Global Assumptions: Global Assumptions
TABLE: GLOBAL ASSUMPTIONS
TABLE: GLOBAL & REGIONAL REAL GDP GROWTH
Table: COMMODITY PRICES

Abstract

Hungary remains mired in its worst recession since 1991, and we do not expect to see the centralEuropean economy post positive growth until mid-2010. That said,we still hold to a relatively optimisticmedium-term outlook for the economy, with risks to our real GDP growth forecasts through2014 remaining firmly to the upside. Alongside the return of international investor risk appetite, wenote how the largest crisis risks facing Hungary have dissipated significantly since the first quarterof 2009, with Budapest’s IMF emergency Stand-By Arrangement (recently extended to October2010) providing a crucial policy anchor going forward. Moreover, while the opposition Fidesz party(which we expect to win a majority of seats in upcoming parliamentary elections) have threatenedto re-write the 2010 budget once in power, we do not believe this will result in a significant wideningof the country’s budget deficit.

Political stability in Hungary remains weak, with parliament’s vote on the country’s 2010 budget(which we expect to take place in November) remaining the largest threat to the life of the currentcoalition government in the near term. We were particularly concerned when acrimonious disagreementsover the government’s plans to impose necessary fiscal austerity measures next yearled Prime Minister Gordon Bajnai to threaten to resign if parliament did not approve his plannedspending cuts, thereby elevating the risk of early general elections. Even if next year’s budgetpasses parliamentary approval, we maintain that the threat of early general elections being calledbefore spring 2010 (which is when the vote is widely expected to take place) are also elevated.

T he Hungarian forint has rallied considerably since hitting an all-time low of HUF317.70/EUR inMarch. Alongside the ongoing rally in global financial markets, we have revised our end-2009forecast for the forint to HUF264.00/EUR, with the expectation that the return of international riskappetite will continue to prove positive for the unit through the medium term. We also maintainthat heading into next year, risks to our CEE forecasts will come to the upside, Hungary being noexception. Accordingly, we believe that further forint appreciation is on the cards through the endof next year, and forecast the unit to come in at HUF255.00/EUR by end-2010.

Hungary saw its ranking in the World Bank’s annual Doing Business report drop slightly thisyear, with the central European economy falling to 47th in the world (181 economies were rated)in terms of the ease of doing business throughout the country, compared to 41st last year. Thereport singled out ‘paying taxes’ and protecting investors’ as two areas of weakness, while alsonoting that the enforcement of legal contracts throughout the country was relatively strong, withHungary ranking 14th in the world in that category. Going forward, we maintain our core view thatBudapest’s ongoing efforts at greater convergence with European economic and political institutionswill prove beneficial to the country’s underlying business environment, and expect improvementsto the country’s regulatory and legal environment to continue apace through the medium term.

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Hungary Business Forecast Report Q1 2010

Table of Contents

Abstract