Hungary Business Forecast Report Q3 2013: New Research Report Available at Fast Market Research

Boston, MA -- (SBWire) -- 06/14/2013 --Core View

We hold to our view that Hungary will experience recession for the second successive year in 2013 as domestic demand continues to decline, credit conditions remain tight and fixed capital formation maintains its downward trajectory. The external environment will not be conducive to strong inward investment, however, the weak forint will boost exports whilst suppressing imports, maintaining the current account surplus. The government was able to bring the budget deficit to below 3.0% of GDP in 2012, which will allow Hungary to exit the European Union's excessive deficit procedure, unlocking greater EU cohesion funds. However, we expect the deficit to widen this year as revenues remain static in real terms.

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The independence of the central bank will remain under intense focus following the installation of former Economy Minister Gyorgy Matolcsy as governor in March. Matolcsy is seen as a key ally of Prime Minister Viktor Orban, and following the resignation of Vice Governor Julia Kiraly the entire monetary council - the body that sets policy rates - is made up of Orban appointees. This is will lead to the central bank manipulating the policy rate to suit the economic demands of the ruling Fidesz party, which for the foreseeable future will see looser monetary policy employed in an effort to boost domestic consumption.

The government of Prime Minister Viktor Orban faces a difficult few months as organisations and individuals within the EU, as well as domestic and international media, raise concerns over the amendments to the constitution implemented in April, which critics have stated circumvent the rule of law and erode democratic checks and balances on government. Both President of the European Commission Jose Manuel Barroso and President of the European Parliament Martin Schulz have singled the Hungarian government out for attack. We believe that if the Hungarian government does not address the concerns raised by the EU the possibility of legal action or withdrawal of funds remains significant.

Major Forecast Changes

Owing to weaker import demand as the recession subdues domestic consumption and the depreciation of the forint, we have revised upward our forecast for Hungary's current account surplus, to 1.7% of GDP in 2013 and 1.4% in 2014, from 0.5% and -0.2% previously.

We have lowered our year-end consumer price inflation forecast for Hungary in 2013 to 3.3%, from 4.1% previously, as a result of depressed domestic demand and falling real wages keeping price inflation low.

Key Risks To Outlook

The possibility that economic conditions within the eurozone take a considerable negative turn would significantly reduce demand for Hungarian exports and derail any move toward a return to GDP growth in the coming years.

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