Boston, MA -- (SBWIRE) -- 11/22/2013 -- With the Hungarian general election due to be held in early 2014, we expect incumbent Prime Minister Viktor Orban's Fidesz party to once again emerge victorious and maintain its majority in parliament. The electoral pact between the centre-left Socialists and Egyutt 2014, led by former PM Gordon Bajnai, may cause Fidesz concern in some constituencies, but such is the governing party's lead in opinion polls we do not believe it will result in a change in government.

With Fidesz likely to retain power we expect broad policy continuity, with punitive corporate taxes propping up the state's coffers, while households emerge largely unscathed, with austerity measures and consumer tax hikes unlikely.

The Hungarian economy will continue on a gradual path to recovery, bolstered by an improving export story. Key trading partners in Central Europe are set to increase import demand in 2014 and 2015, as is Germany, Hungary's largest single export destination.

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The Hungarian National Bank is set to continue its easing cycle in the early stages of 2014, before increasing demand-side pressures push up consumer price inflation in the latter part of the year, resulting in a halt to the cutting cycle.

Major Forecast Changes

We have revised up our forecast for real GDP growth in Hungary in 2014, from 1.1% to 1.7% on the back of an improving consumer story in Germany which will provide a notable boost to Hungarian net exports.

We have revised down our end-2014 policy rate forecast, from 4.00% to 3.50%, as state-mandated cuts to household utility prices will contain consumer price inflation, allowing rate setters more room to cut rates in an attempt to boost domestic demand.

In spite of further cuts to the policy rate, we forecast a stronger forint in 2014 than we had previously, with our average forecast for the year now HUF285.00/EUR, from HUF289.00/EUR previously.

Key Risks To Outlook

The Socialist/Egyutt 2014 electoral pact could perform better than expected in the Spring general election, potentially challenging Fidesz for a majority. With around half of all Hungarian voters undecided at the time of writing we could see a sharp swing away from Fidesz, especially if the country's nascent economic recovery begins to stall.

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