Boston, MA -- (SBWIRE) -- 01/06/2014 -- Hungarian new car sales have enjoyed a resurgence over recent months, with 9M13 figures released by the European Automobile Manufacturers' Association (ACEA) in October 2013 showing that passenger car sales were up by 4.3% year-on-year (y-o-y), at 41,029 units.

Commercial vehicle sales did not perform as strongly, with light commercial vehicle sales down by 7.5% y-o-y, at 7,463 units and HCV sales falling by 6.6%, to 2,996 units. That said, bus and coach sales were by far the strongest performing segment of the Hungarian new vehicle sales market, up by a staggering 650%, at 270 sales, according to ACEA. Adding the above sales together, we generate a total new vehicle sales market of 51,758 units, up slightly from the 50,636 units sold over 9M12.

Indicative of our increasingly bullish short-term stance towards Hungarian new vehicle sales is the fact that BMI's Country Risk team believes that the worst may now be over for the Hungarian economy, which has struggled for lasting recovery over recent years. Indeed, we recently revised up our GDP forecasts for 2013-15, with signs of domestic economic improvement combining with an uptick in economic activity and leading indicators across most of Hungary's neighbouring Central and Eastern European (CEE) states.

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Encouragingly for the outlook for the auto sector, BMI believes that private consumption should grow by 0.9% in 2014, with Hungarian consumers having been largely unaffected by the cuts to public spending and tax hikes seen in many other CEE states. Moreover, consumer price inflation has proven relatively subdued, with government-mandated cuts to energy prices (a 10% cut effective from November 1 2013) reducing the fiduciary burden on households considerably.

This raises the prospect of the Hungarian National Bank (MNB) being able to cut interest rates in an effort to spur still-sluggish domestic demand. We believe there could be further interest rate cuts to come over the short term, which could help Hungarians seeking financing for their new car purchases, although we hold to our view that rates will be raised by 50 basis points (bps) over the course of 2015, to 4.00%, as demand side inflationary pressures return to the fore.

A strengthening forint also boosts the spending power of Hungarian consumers, with BMI believing that the forint is set to appreciate over the course of 2014 and into 2015, with an attractive long-term technical picture providing the room for appreciation.

Lastly, there is always the chance of increased government spending, such as rise in public sector salaries, leading up to the April 2014 elections, which could in turn then lead to greater consumer spending on 'big-ticket' items such as cars. Against this guardedly optimistic backdrop, BMI maintains its new vehicle sales forecasts this quarter, with 4% growth in 2013 and 2.4% growth in 2014.

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