Feb. 17, 2011 -
PRLog -- Fidesz Mandate Secure Through To 2014 T he Q1 2011 Hungary Business Forecast Report highlights continued weakness in the country's macroeconomic recovery and we have lowered our growth forecast for 2010 to 0.8% from 1.1% previously. Over the medium term, growth will continue to be hampered by a fragile household sector, a banking system constrained by new taxes and capped government spending. While the trade account is expected to remain supportive of growth given the sustained weakness of the forint and low propensity for spending from Hungarians, our expectation for a broad slowdown in global growth will limit the extent to which net exports can save the day. We hold to our expectation for growth to average only 2.4% through to 2015. T he centre-right Fidesz party's comprehensive victory in municipal elections on October 3 has strengthened the party's control over the policymaking process and secured a mandate for the government through to 2014. However, the administration now faces an uphill struggle in its attempts to alleviate investors' concerns over the country's fiscal and debt dynamics as well as the pace of economic recovery. Ultimately, financial markets will punish any misstep from the Fidesz government, which would most likely push the administration back to the negotiation table with the IMF and the EU . Hungary's current account is on course to register a surplus of 1.6% of GDP in 2010 and remain in surplus in 2011 as a result of continued fiscal retrenchment and private sector deleveraging. Despite the government breaking off negotiations with the IMF and the EU over the renewal of an external financing deal in July, we do not see broad risks to the stability of Hungary's balance of payments at this juncture. However, while foreign direct investment is set to begin returning to Hungary over the medium term, weak external financing conditions (relative to before the global economic crisis) will inhibit the country's ability to run large current account deficits over the next five years. D espite the recent uptick in loan growth, we expect conditions in the Hungarian banking sector to remain tough over the medium term. The weak state of Hungary's macroeconomy, specifically the household sector, will weigh on asset growth and loan book quality, in turn impacting on profitability. Loans denominated in foreign currency are particularly vulnerable to losses due to forint weakness on borrowers' debt obligations.
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