Nov. 1, 2010 -
PRLog -- The Q4 2010 Hungary Business Forecast Report portrays a weak economic recovery for Hungary relative to its Central European peers. Indeed, with the private sector set to continue focusing on deleveraging, and the public sector's capacity to spend reined in by its IMF Stand-By Arrangement, Hungary will be reliant on net exports to secure economic growth over the medium term. While signs have already emerged that the economy is on the path to recovery, the economy will almost certainly underperform emerging Europe over the medium term, with growth forecast to average 2.8% through 2014, below the 3.6% average of its CE peers. That said, the new Fidesz government, with a supermajority in parliament, should find it easier than previous administrations to deliver structural reforms to the economy, in turn helping to bolster investor sentiment over the longer run. Our core view is for Hungary to continue to converge both economically and politically with Western Europe over the next decade. The country will face substantial challenges over the coming decade, including a potential rise of far-right politics, sustained poor relations between ethnic Hungarian and minority groups, a need for further economic and structural reforms, and rising fiscal pressures from an ageing population. That said, we expect Hungary to remain one of the more politically and socially stable countries in the emerging Europe region. On the back of continued private sector deleveraging, and fiscal consolidation within the public sector, Hungary's current account is expected to improve further in 2010 as export growth outpaces import growth. As such, we hold to our forecast for the current account to post a surplus of 1.6% of GDP in 2010 from 0.2% in 2009. Meanwhile, the proposed new financing arrangement with the IMF will help to maintain broad stability for Hungary's balance of payments position over the medium term. That said, capital inflows will take a while to return to pre-crisis levels. As such, while we expect the current account to return to deficit over the longer term as improving conditions for household demand and private investment help bolster import demand, we do not foresee a return to the large shortfalls witnessed prior to the downturn. The Hungarian banking sector remains fragile and signs of a marked recovery are not likely to emerge until well into 2011, supporting our weak outlook for the aggregated economy. Loan growth is set to stagnate as households and corporates continue to focus on deleveraging, and banks remain reluctant to restart lending activities. We also expect asset quality to deteriorate further as the country's large stock of external debt comes under increasing pressure from a weakened forint.
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