Hungary Country Risk Report Q2 2016
Having been propped up by fiscal stimulus and EU transfers, realGDP growth in Hungary will remain at relatively subdued levelsin the coming quarters as government spending is scaled back.
Hungary's domestic demand recovery will continue, but trail that ofCentral European peers due in part to a crippled banking sector.
However, we see steady economic growth ahead, driven by acceleratingexternal demand, improving terms of trade and a betteroutlook for private consumption.
Although public debt remains well above Emerging European averagesand is forecast to decline slowly in the coming years, Hungary'ssovereign profile has improved in recent years following substantialexternal deleveraging.
Hungary's current account surplus will remain sizeable in the comingyears, bolstered by falling oil prices. We forecast a long-term narrowingof the surplus on the back of weak external demand.
Strong deflationary forces and additional monetary easing fromemerging and developed peers will enable the Hungarian NationalBank to keep policy extremely accommodative in the comingquarters. The bank's pro-growth stance and policy coordinationwith the government pose minimal risks in the short term as globalmonetary conditions remain loose, but could damage its credibilityover the long term.
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
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- Growth To Slow Down, Despite Rising Consumption And Exports
- Rising private consumption and exports to the eurozone will support economic growth in Hungary amid a slowdown in fixed investment
- growth in the coming years. Hungarian real GDP growth will underperform Central European averages both in the short and longer
- TABLE: GDP GROWTH FORECASTS
- GDP By Expenditure Outlook
- TABLE: PRIVATE CONSUMPTION FORECASTS
- TABLE: GOVERNMENT CONSUMPTION FORECASTS
- TABLE: FIXED INVESTMENT FORECASTS
- TABLE: NET EXPORTS FORECASTS
- Fiscal Policy And Public Debt Outlook
- Rating Upgrade In 2016
- Hungary will regain investment grade status in 2016 on the back of substantial improvements in its sovereign risk profile. However,
- government debt will remain high, both by European and emerging market standards.
- Structural Fiscal Position
- TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
- External Trade And Investment Outlook
- Massive Current Account Surplus Unsustainable
- Hungary's current account surplus will remain among emerging Europe's largest in the coming years, as economic recovery in the
- eurozone boosts export demand and oil prices remain low. However, we expect the surplus to decline steadily in the coming years on
- the back of weaker global trade volumes, a modest rebound in commodity prices, and relatively strong domestic demand.
- Outlook On External Position
- TABLE: TOP FIVE GOODS IMPORT SOURCES IN 2014
- TABLE: TOP FIVE GOODS EXPORT DESTINATIONS IN 2014
- TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
- Monetary Policy
- Dovish MNB Underestimating Inflation Risks
- The Hungarian National Bank (MNB) is underestimating inflation risks, in particular those stemming from labour market shortages.
- While energy prices will keep headline inflation low over 2016, we forecast the first rate hike to come in early 2017, compared to MNB
- forecasts of 2018. Unorthodox easing measures being pursued in 2016 are not only unwarranted given the growth and inflation outlook,
- but also pose hidden risks to financial stability.
- Monetary Policy Framework
- TABLE: MONETARY POLICY FORECASTS
- Currency Forecast
- HUF: Short-Term Stability, Long-Term Appreciation
- We expect relative stability of the HUF/EUR exchange rate to continue, with global risk aversion and market volatility being reflected
- primarily in depreciation of the forint against the US dollar. Beyond a six-month time horizon, we believe fundamentals support a gradual
- appreciatory path for the forint.
- TABLE: BMI CURRENCY FORECAST
- Chapter 2: 10-Year Forecast
- The Hungarian Economy To 2025
- Convergence Prospects Now More Challenging
- We continue to hold a reasonably sanguine view on Hungary's real economic convergence prospects with Western Europe over the
- long term, although mounting challenges face the country from b oth a political and economic perspective. Convergence of GDP pe r
- capita will continue over the long term, albeit at a much slowe r pace relative to pre-crisis years.
- TABLE: LONG-TERM MACROECONOMIC FORECASTS
- Chapter 3: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- Fidesz Continues To Benefit From Migrant Crisis
- Domestic support for the ruling Fidesz party will stay strong over the coming months, as the government's aggressive measures to keep
- out migrants prove to be effective. Moreover, a common stance on the migrant crisis will strengthen the position of the Visegrad Group
- in Europe.
- TABLE: POLITICAL OVERVIEW
- Long-Term Political Outlook
- Significant Long-Term Challenges
- Our core view is for Hungary to continue to converge both economically and politically with Western Europe over the next decade, albeit
- at a much slower pace relative to pre-crisis years. The country will face substantial challenges, including the continuing rise of far-right
- parties, sustained poor relations with the EU between ethnic Hungarian and minority groups, and rising fiscal pressures from an ageing
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: OPERATIONAL RISK
- TABLE: EMERGING EUROPE – TRADE PROCEDURES AND GOVERNANCE RISK
- Trade Procedures And Governance
- TABLE: EXPORT AND IMPORT DOCUMENTS
- TABLE: TRADE PROCEDURES BREAKDOWN
- Vulnerability To Crime
- Chapter 5: BMI Global Macro Outlook
- Global Macro Outlook
- Unfinished Business In 2016
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
- TABLE: HUNGARY – MACROECONOMIC DATA & FORECASTS