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Hungary Country Risk Report Q1 2019

Hungary Country Risk Report Q1 2019

Economic growth rates in Hungary will ease in the coming years, but remain comfortably higher than in more developed EU peers Emerging from a protracted period of private deleveraging, the economy will be boosted by stronger consumer demand However, a large public debt load and precarious operational and political risk backdrop will weigh on Hungary's growth potential relative to some emerging EU peers

A major headwind facing Hungary's economy is its tight labour market, severe labour shortages and worsening demographic profile, which poses a risk to the country's FDI and export-orientated growth model Strong real wage growth will continue to push up unit labour costs, hurting external competitiveness and making Hungary's position as a regional manufacturing hub increasingly fragile

The Hungarian National Bank (MNB) has begun its path to monetary policy normalisation but still risks falling behind the curve, given the lack of forward guid-ance on its hiking cycle Core inflationary pressures continue to mount, and the possibility of headline inflation overshooting the MNB's target is elevated Our core view is that policy normalisation and rate hikes will have to come much faster than the MNB expects and outpace that of the ECB

The structure of Hungary's public debt burden has become less risky given a falling share of FX debt, but remains high by emerging market standards at 74% of GDP and will continue to impede the government's fiscal flexibility in any future downturn, particularly in light of pro-cyclical fiscal stimulus in recent years The government will keep FX exposure low, but faces an increasingly tight external financing environment

Hungary's Prime Minister Viktor Orban and the ruling Fidesz party will maintain a comfortable grip on power over the coming years Risks of domestic political instability remains low as public opinion remains favourable to Orban, however his increasing intervention in the private sector, media and judicial system will continue to deter foreign investors and attract the ire of the EU Hungary's fractious relations with the EU remains a risk going forward, with Article 7 procedures triggered and EU structural funding cuts expected


Executive Summary
Core Views
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Hungarian Construction To Prevent A More Substantial Economic Slowdown
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Hungary's Narrowing Current Account Surplus No Threat To Financing Stability
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: TOP FIVE GOODS IMPORTS IN 2017
TABLE: TOP FIVE GOODS EXPORTS IN 2016
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
Monetary Policy
Hungary's Monetary Easing Experiment To Draw To A Close
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
2019 Budget A Step In The Right Direction For Hungary
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Hungary Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsCurrency Forecast
HUF: End To MNB Easing No Bull Signal
TABLE: CURRENCY FORECAST
10-Year Forecast
The Hungarian Economy To 2027
Convergence To Slow As Structural Problems Intensify
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
EU-Hungary Relations At A New Low
Long-Term Political Outlook
The EU's Eastern Problem
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Contagion Risks Limited To EMs For Now
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: HUNGARY – MACROECONOMIC DATA & FORECASTS

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