Hungary Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	61
ISBN Number	1745-0578
Product Code	BMI02063

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Testing Times Ahead Hungary is likely to face continued difficulties through 2008 as political ructions stall the government's reform agenda and domestic demand continues to be weighed down by weak consumer sentiment and rising interest rates. Moreover, the external sector, which has provided the economy with some degree of support in recent years, has already begun to weaken as major trading partners in Central Europe surpass the peak of their current economic cycle and the eurozone economy slows on the back of a potential recession in the US. We do not expect a major recovery to begin in earnest until 2010 when a new government and revival in the eurozone economy should filter through to positive effects on the Hungarian economy.

Hungary is facing its greatest political crisis in years, with the government's junior partner, the Alliance of Free Democrats, announcing on March 31 that it would leave the coalition it has held with the Socialist party since 2006. The loss of the Free Democrats will put the government into a minority position, which will significantly elevate the risks of the government falling to a no-confidence vote. Our core scenario though, is that the current administration will remain in place at least for the short term. The Free Democrats have publicly stated that though leaving the coalition, they would continue to support the government. With opinion poll figures placing the Free Democrats below the minimum threshold required to gain seats in the parliament in the event of a sudden election (for the multi-seat constituencies) it is highly unlikely that the party will want to force through fresh elections.

There is not much to like about the Hungarian economy over the medium term, with several key indicators suggesting that already weak household consumption is likely to stay weighed down through 2008. Beyond 2008 though, we forecast the economy to recover largely on the back of an expected improvement in the external market (eurozone real GDP growth is forecast to rise to 2.0% in 2009) combined with cuts in domestic interest rates alongside a steady moderation in inflationary pressures. Hungarian economic expansion is forecast to tick up to 3.4% in 2009 and then further to 4.4% in 2010, where it is expected to roughly remain in 2011 and 2012.

The Hungarian government has invited Turkish company taV airports to submit a bid for Debrecen airport. This is a notable development signalling the rising importance of investments between emerging markets as firms grow in size and expertise. This could provide a major cushion of investment support to the economy in the event of major economic slowdowns in the US and eurozone. Indeed, Israeli firm teva Pharmaceutical Industries has announced plans to invest US$100mn into its Hungarian drug making unit by 2010 so as to double the productive capacity of the operation.

Content

Executive Summary5
Testing Times ahead
Chapter 1: Political Outlook6
- SWOT analysis
- BMI Political risk ratings
- Domestic Politics8
- government To Carry On With Minority
- Our core scenario is for Hungary's Socialist Party-led government to continue on with only a minority after its junior
- partner the Free Democrats leaves the coalition on April
- Table: Hungarian Political Overview
Chapter 2: Economic Outlook
- SWOT analysis12
- BMI Economic risk ratings
- Economic activity
- Economy To Continue underperforming
- Hungarian economic growth will remain weighed down in 2008 owing to a combination of weakening external
- demand and delays in advancing the government's reform agenda
- Table: Economic activity
- Balance of Payments
- Current account To Improve Despite Export growth Slowdown
- After narrowing substantially to 4.9% of GDP in 2007, we forecast Hungary's current account to improve further
- over the long term
- Table: Balance Of Payments
- Exchange rate Policy
- Floating Forint Sets The Stage For rate Hikes
- The decision to abandon the Hungarian forint's trading band will not have any major impact on the direction of the
- currency or interest rate outlook over the medium term
- Table: Exchange rate Policy
- Monetary Policy
- rates To rise Even Further
- We have revised our end-year forecast for the Hungarian base rate to 8.50% from 8.00% on the back of the
- National Bank of Hungary's larger than expected 50bps hike on March
- Table: Monetary Policy20
Chapter 3: Special report
- Business Outlook For global Frontier Markets
- growing Fast On The new Frontier
- The 41 states that BMI examines in a new report on our online service may make up only a small slice of the world
- economy, but they possess characteristics that will see them gain importance in the eyes of investors and global
- businesses over the coming years
- Frontier Investment
- Potential and Pitfalls
- The spectacular macroeconomic performance of frontier markets in recent years has been matched by mildly
- successful efforts to deepen capital markets
- Table: Frontier Markets - Key Data and Projections For Top 10 Countries
- Table: gDP Per Capita, uS$ (In Order Of % Increase)
- Table: Diversify Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices26
- regional Overview
- From Hidden Dragons To Final Frontiers
- Laos
- neighbouring Economies The Key To growth
- Laos's GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for its
- natural resources. GDP expansion in 2007 has been estimated at 7.6% and we see annual growth remaining above
- 7% for our five-year forecast period
- yemen
- Huge Potential, But Don't Bank On gCC Membership
- Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
- development, with the prospect of eventual GCC membership likely to act a key investment pull
- Table: yemen - Economic activity
- Democratic republic Of The Congo
- Mining Industry To Drive growth
- The Democratic Republic of the Congo's mining industry will be a key driver of growth and is likely to attract
- significant levels of FDI, with our real GDP forecasts standing at 8.3% and 7.9% in 2008 and 2009, respectively
- Table: Democratic republic Of The Congo - Economic activity33
- Cuba
- Investment Prospects after Fidel
- The accession of a new leadership structure in Cuba has sparked excitement that the 45-year-old trade embargo
- with the US may be lifted and Cuba may move toward market liberalisation
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals To Drive Economic Boom
- Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
- digits and underpin robust increases in exports and inflows of foreign investment capital over the long term
- Table: Mongolia - Economic activity
Chapter 4: Business Environment40
- SWOT analysis40
- BMI Business Environment risk ratings41
- Business Environment Outlook
- Table: BMI Business and Operational risk ratings
- Institutions
- Table: BMI Legal Framework ratings44
- Infrastructure
- Market Orientation
- Table: Emerging Europe48
- Table: BMI Trade ratings49
- Table: Top Export Destinations
- Operational risk
Chapter 5: Key Sectors53
- Oil and gas
- Table: Hungary Oil & gas - Historic Data & Forecasts
- IT57
- Table: Hungary's IT Sector - Historical Data and Forecasts59