Hungary Business Forecast Report Q1 2009

Outlook Remains Weak

Hungarys macroeconomic and political risk outlook is likely to remain weak in 2009. On the political front, the current Hungarian Socialist Party (MSZP) minority government is likely to survive through to the next parliamentary election, scheduled for April 2010. While the government remains fragile, it is likely to gain just enough support from the Alliance of Free Democrats (SZDSZ) to pass legislation - albeit after concessions - because the SZDSZ is itself unpopular. The result is that reformist momentum and fiscal prudence are likely to remain politically hamstrung. On the economic front, Hungarys growth outlook remains poor, although we do expect the 2009 figure (2.2%) to be slightly above the 2008 outturn (1.7%) due to a pre-election fiscal expansion. Meanwhile, monetary easing looks set to get underway before end-Q109, while the current account deficits financial account coverage will remain a key risk, given the global contraction of credit.

The Hungarian governments survival through 2009 now looks increasingly likely, having survived a vote calling for parliamentary dissolution on September 15. While this will serve to avert short-term political instability, it is not necessarily in Hungarys long term interests, as policymaking inertia and fiscal populism look set to persist as long as the current political situation continues. The situation is set to change from April 2010, however, when the Hungarian Civic Union (Fidesz) opposition is likely to win a sizeable majority.

The governments draft 2009 budget envisages HUF205bn of tax cuts, which - while providing a modest fiscal stimulus - are likely to jeopardise the countrys budgetary position and could elevate sovereign risk. Indeed, populist measures ahead of the next election are likely to remain a budgetary threat through to 2010. The country is also now poised for a prolonged spell of monetary easing, as a combination of steady disinflation and a weak growth outlook will start to influence policymakers. Finally, the current account deficit is broadly on track to narrow, thanks to slowing import growth, although financial account coverage will remain a key risk amid tightening credit markets.

Hungary improved its ranking in the World Banks Doing Business 2009 report to 41st in the world, up from 50th in the 2008 edition. In particular, the report noted stellar improvement in the ease of starting a business, with Hungary gaining 45 places during 2008 to rank 27th, compared to 72nd a year earlier. There were also modest upticks in the ease of closing a business, enforcing contracts, and dealing with construction permits. However, a note of caution is due: a large part of Hungarys improved ranking owed to a 41-place gain in the ease of obtaining credit. In the wake of the H208 global financial markets turmoil and subsequent contraction of credit availability, this is likely to suffer markedly.

• Executive Summary
• Outlook Remains Weak
• SWOT Analysis
• BMI Political Risk Ratings
• Chapter 1: Political Outlook
  • Domestic Politics
  • Government Position Strengthens For Now
  • The Hungarian governments survival through 2009 now looks increasingly likely, having survived a vote calling for parliamentary dissolution on September 15.
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Economic Activity
  • Growth Outlook To Improve In Long Term
  • Hungarian GDP growth looks set to remain sluggish at 2.2% (with risks to the downside) over 2009, due to a combination of weak domestic demand and the deteriorating external environment.
  • Monetary Policy
  • Monetary Easing To Occur Throughout 2009-2010
  • Hungary is now poised for a prolonged spell of monetary easing, as a combination of steady disinflation and a weak growth outlook will start to influence NBH policymakers.
  • Balance of Payments
  • External Asymmetries To Remain A Risk
  • Hungarys current account deficit is broadly on track to narrow to our forecast of 4.5% of GDP by end-2009 and
  • 3.4% by end-2013, thanks to slowing import growth.
  • Fiscal Policy
  • Budgetary Plans Pose Deficit Risk
  • The Hungarian governments draft 2009 budget envisages HUF205bn of tax cuts, which, while providing a modest fiscal stimulus, are likely to jeopardise the countrys budgetary position.
• Chapter 3: 10-Year Forecast
  • The Hungary Economy To 2018
• Chapter 4: Special Report
  • Why The US Can Remain World Superpower
  • Wealth Is Shifting East
  • The USs current financial woes will not necessarily undermine its position as a global superpower.
• Chapter 5: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Business Environment Outlook
  • Institutions
  • Infrastructure
  • Market Orientation
  • Operational Risk
• Chapter 6: Key Sectors
  • Freight Transport
  • Executive Summary
  • Despite Hungarys current fiscal difficulties, which will lead to low economic growth in 2008, we still see
  • GDP rising by an annual average of 3.5% in 2008-2012.
  • Pharmaceuticals
  • Executive Summary
  • The latest figures suggest that the governments recent austerities, such as liberalising the OTC market and cutting subsidies, have resulted in the health insurance fund (OEP) entering the black for the first time since the mid-1990s.
• Chapter 7: BMI Global Assumptions
  • Global
  • United States
  • Eurozone
  • Japan
  • China
  • Commodities
• Tables
  • Table: Hungary Political Overview
  • Table: Economic Activity
  • Table: Monetary Policy
  • Table: Balance Of Payments (Euro)
  • Table: Fiscal Policy
  • Table: Hungary Long-Term Macroeconomic Forecasts
  • Table: Geopolitical Power Index
  • Table: Bmi Business And Operational Risk Ratings
  • Table: Bmi Legal Framework Ratings
  • Table: Europe, Fdi Annual Inflows
  • Table: Bmi Trade Ratings
  • Table: Top Export Destinations
  • Table: Freight Carried, Domestic And International
  • Table: Drug Market Indicator Forecasts, 2004-2012
  • Table: Health Expenditure Indicator Forecasts, 2004-2012
  • Table: Global Assumptions