Boston, MA -- (SBWire) -- 03/19/2013 --Core Views
We do not believe Hungary will achieve an external financing agreement with the IMF before the 2014 general election, given the government's rhetoric directed toward the organisation and the Government Debt Management Agency's auction of HUF70.5bn worth of three- five-and-10-year government bonds in January 2013 which should ease short-term financing fears.
As a result of declining consumer price inflation and a dovish central bank monetary policy committee, we continue to forecast 50 basispoints of policy rate cuts in Hungary by end-2013, bringing the rate to 5.25%. Risks to this forecast lie on the downside, with the new central bank governor nominated by Prime Minister Viktor Orban in March 2013 likely to be a Fidesz party loyalist, who is expected to favour a growth-oriented monetary policy, with the potential to cause inflationary pressure.
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Hungary will maintain a current account surplus in 2013, before slipping into deficit in 2014. We have revised our forecast for the current account in 2013 and 2014 to 0.5% of GDP and -0.2% from 0.0% and -0.7% respectively. This is due to positive Q312 trade data, a sharp sell-off of the forint in January 2013 and forecast improvement in the economic condition of the eurozone, which are all likely to increase demand for Hungarian exports.
Major Forecast Changes
We have revised down 2013 growth to -0.4% from 1.2% previously on account of the continued deterioration in economic activity in the eurozone, sharp contractions in household consumption and gross fixed capital formation in Q312, and investor fears over central bank independence and potentially inflationary policy rate cuts.
Key Risks To Outlook
If the depreciation of the forint seen in January 2013 is sustained it will lower the cost of Hungarian exports, potentially boosting the current account surplus and net exports. However the other side of the coin is that the sell-off will mean imports will be markedly more expensive, increasing the risk of imported inflation. This possibility, combined with the anticipated policy rate cuts, could pose upside risks to our 2013 consumer price inflation forecast, which we project at 4.1% at the end of the period.
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"Hungary Business Forecast Report Q2 2013" Published
Fast Market Research recommends "Hungary Business Forecast Report Q2 2013" from Business Monitor International, now available