Hungary Business Forecast Q1 2007

Content

• Executive Summary
  • Focus On 2007
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Political Outlook
  • Democratic Deficit
  • After the riots and local election losses that marked the end of 2006, Prime Minister Ferenc Gyurcsany's government
  • is looking stronger heading into 2007 However, a revival of Fidesz's programme, or new leadership for the opposition
  • could spell trouble for the embattled Socialists in the medium term Furthermore, growing voter apathy and resentment,
  • the centralisation of power away from local institutions, as well as a perceived 'democratic deficit' are worrying seeds to
  • be sown in Hungary's comparatively immature democracy With more civil unrest a likely upshot, the government may
  • yet have trouble lasting out its full term to 2010
  • Table: Hungary Cabinet & Other Key Posts (As Of January 2007
  • Foreign Policy
  • Treading Carefully: Hungarian Energy Security
  • January's interruption of oil flows on the Druzhba pipeline from Russia to Belarus pushed EU energy security
  • into the spotlight once more, and mirrored the Russia-Ukraine gas row, which cut European supplies almost exactly
  • a year earlier Lying as it does on more than one crucial energy transit route, with the prospect of alternative oil
  • pipelines (both existing and proposed), Hungary's energy security is more assured than many other European states,
  • and does not present specific immediate concerns However, the juggling of deals with Russia's Gazprom and
  • alternative suppliers is likely to remain a tricky political issue, although these dilemmas are not substantially
  • different from those faced by many Western European countries
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Introduction
  • EU Assessment Reinforces Our Euro Adoption Forecasts
  • According to an EU report published in December, alone among the remaining EU-10 (with Slovenia's changeover
  • set for January), Hungary meets none of the euro adoption criteria While this is hardly a revelation, and BMI's
  • core scenario sees the forint in circulation until at least 2014, we are concerned that the long-term trend of
  • excessive government spending has still not been confronted This means we disagree with government
  • projections of reducing the deficit below the Maastricht 3% waterline by 2010
  • Economic Activity
  • The Importance Of Germany
  • Our forecasts for a 24% real GDP expansion in Hungary this year stand unchanged. However, in the light of
  • growing optimism about the German economy, growth may come in a touch higher on better export prospects,
  • even after the effects of the government's New Equilibrium fiscal austerity package are taken into account.
  • Recovery in the Hungarian economy will be slow, but growth should return to levels averaging 45% after 2008.
  • Table: Nominal And Real GDP
  • Fiscal Policy 16
  • New Year, Fresh Budgetary Prospects
  • After five years of budget overshoots by Hungary's Socialist government, it looks as if 2007 will be a better year
  • A reduction in the fiscal deficit from 10% of GDP to 68% is planned, and the recent raft of tax hikes and spending
  • cuts will underpin this move We would, though, like to see a greater emphasis on the expenditure
  • side, rather than on increasing revenue
  • Table: General Government Finances
  • Monetary Policy
  • Inflation Heading Above 8%
  • The up-tick in Hungarian inflation continued as expected in December, with end-year CPI rising 65% y-o-y
  • and core inflation reaching 50% We are expecting CPI to peak above 8% in the February-April period, and a
  • second spike could occur in June or July In the latter half of the year, price pressures should start receding,
  • leaving room for interest rate cuts, and bringing inflation down nearer 55% by year-end
  • Table: Inflation And Base Rates
  • Balance of Payments
  • Dramatic Improvements In Trade Dynamic Foreseen
  • Hungary's third quarter current account deficit came in at only EUR113bn, bringing the nine month
  • cumulative deficit to EUR406bn, still on target to meet our full-year EUR632bn projection, or the equivalent
  • of 70% of GDP The emerging trend is of a narrowing trade differential, as import growth slows on waning
  • consumer demand and capital investment, at the same time as external demand in the eurozone, and
  • particularly Germany, remains strong This year, the shortfall should be dramatically reduced, to 45% of
  • GDP, and then broadly stabilise over the forecast period
  • Table: Balance Of Payments
• Chapter 3: Special Report
  • Caveat Emptor
  • Volatility in 2007
  • A pick-up in market volatility might be on the cards for 2007, with tighter liquidity and moderating global growth
  • A multitude of risks could stir things up, ranging from either a hard landing or no landing at all in the US or China,
  • to macro policy failures, to conflict or terrorism, with the Middle East (and especially Iraq) set to remain a
  • focal point this year
  • Scenario Assessment: Iraq
  • A State Of Chaos With A Bleaker Future
  • While heading towards a de facto break-up and an intensification of conflict, Iraq will be held together at
  • least in the short to medium term for the needs of regional stability and security as well as the need to
  • uphold US credibility In the longer term, the chances of a stable, open and unified Iraqi state have
  • become more slight
  • Table: 2005 Constitutional Referendum Results
• Chapter 4: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Legal Framework
  • Labour Force
  • Table: Demographic Indicators
  • Table: Employment Indicators
  • Foreign Investment Policy
  • Table: Emerging Europe, Annual FDI Inflows
  • Table: Hungary, Annual FDI Inflows
  • Foreign Trade Regime
  • Table: Top Export Destinations
  • Table: Hungary: value of exports by category (us$mn)
• Chapter 5: Key Sectors
  • Tourism
  • Market Overview
  • Table - Hungary Tourism: Historical Data & Forecasts
  • Table: Hungarian Travel Industry - Historical Data & Forecasts
  • Food & Drink
  • Table: Hungary Food, Drink and Tobacco Consumption Indicators - Historical Data And Forecasts