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Hungary Country Risk Report Q1 2020

Hungary Country Risk Report Q1 2020

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 its dovish forward guidance 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 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 Domestic Activity Offsetting Weak External Demand
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: TOP 5 GOODS IMPORTS IN 2017
TABLE:TOP 5 GOODS EXPORTS IN 2016
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
Monetary Policy
Hungarian National Bank Has No Incentive To Tighten Until 2020
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Tighter Hungarian Fiscal Policy Reduces Overheating Risks
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
HUF: Remaining Competitive On Dovish Monetary Policy
TABLE: CURRENCY FORECAST
THIS 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.Hungary Country Risk Q1 2020Contents10-Year Forecast
The Hungarian Economy To 2028
Growth To Slow From Recent Highs
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Hungarian Local Elections' Opposition Co-Operation To Pressure Fidesz Candidates
TABLE: POLITICAL OVERVIEW
Foreing Politics
Von Der Leyen's Conciliatory Approach Could Improve EU-Hungary Relations
Long-Term Political Outlook
Deteriorating EU Relations A Prominent Risk
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
Downside Revisions To Stabilise Somewhat, But Policy Risks Remain
TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
TABLE: DEVELOPED MARKETS – 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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