Core Views
Hungary’s pace of economic growth will not pick up considerably over the coming years as fiscal austerity and debt deleveraging weigh on overall domestic consumption. However, net exports will help prop up the country’s recovery, particularly in light of strong trade linkages to Germany’s booming economy.
As domestic demand conditions continue to improve heading into 2012, we expect the current account deficit to flip back into the red next year. That said, owing to constraints on external financing, we do not see the country running large current account deficits again
over the course of our forecast period.
Our core view at this point remains for interest rates to remain on hold at 6.00% through to the end of the year; however, we see growing potential for a one-off rate cut in light of falling inflation and the still-weak domestic recovery.
We expect the Fidesz party to maintain a broad policy of power consolidation over the coming years, as evidenced by the passing of a new constitution in April. Despite a steady drop in popularity, we also expect the ruling party to secure a second term in power come 2014.
Major Forecast Changes
Larger C/A Surplus Expected This Year: We have revised our forecast for Hungary’s current account surplus this year upwards to
1.9% of GDP, from 0.4% previously, on account of booming exports.
Upside Risks To Growth Forecasts: We have raised our 2011 growth forecast from 2.3% to 2.9% on account of our recent upward revision to Germany’s growth this year.
Key Risks To Outlook
Should conditions in the eurozone deteriorate significantly, potentially via a worsening of the region’s sovereign debt crisis, this would have pronounced effects on Hungary’s economic recovery given its heavy reliance on export-oriented industries.
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Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
New Constitution Reinforces Power Consolidation
Hungary’s ruling Fidesz party passed a new constitution through parliament on April 18 that opposition parties
claimed was yet a further attempt at power consolidation
Table: Political Overview8
Long-Term Political Outlook 9
Western Convergence Story Will Continue
Our core view is for Hungary to continue to converge both economically and politically with Western Europe over
the next decade
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity l 14
German Demand Strength Prompts Growth Upgrade
We have revised up our 2011 growth forecast for Hungary to 29% from 23% previously given firming demand in
Germany and the strong trade linkages between the two countries
Table: ECONOMIC ACTIVITY14
Economic Activity ll 15
Mortgage Assistance Plan To Boost Consumption
The Hungarian government and national banking association have reportedly agreed to allow foreign currency
mortgage holders to fix their interest payments to a more manageable exchange rate until 2015 – a move that should
provide a boost to the nascent recovery in household consumption
Balance Of Payments 17
Still Expecting C/A Deficit In 2012
Hungary recorded its largest trade surplus on record in the first quarter of 2011, supporting our long-held view that the
current account would remain in the black in 2011
Table: CURRENT ACCOUNT17
Monetary Policy 19
Growing Potential For Interest Rate Cut
The arguments in favour of monetary easing in Hungary are strengthening, with inflation falling, global commodity price
pressures set to continue easing and the domestic economic recovery remaining weak
Table: MONETARY POLICY19
Chapter 3: 10-Year Forecast 21
The Hungarian Economy To 2020 21
Euro Adoption To Stabilise Economy
We continue to hold a reasonably sanguine view on Hungary’s real economic convergence prospects with the
eurozone over the long term
Table: HUNGARY Long-Term Macroeconomic Forecasts21
Chapter 4: Business Environment 23
SWOT Analysis 23
BMI Business Environment Risk Ratings 23
Business Environment Outlook 24
Institutions 24
Table: BMI Business And Operation Risk Ratings24
Table: BMI Legal Framework Rating25
Infrastructure 26
Table: Labour Force Quality27
Market Orientation 28
Table: Emerging Europe – Annual FDI Inflows28
Table: Trade And Investment Ratings29
Operational Risk 30
Table: top export destinations30
Chapter 5: Key Sectors 33
Pharmaceuticals 33
Table: OTC Medicine Sales Indicators 2007-201535
Table: Medical Devices Sales Indicators 2007-201535
Table: Generic Drug Sales Indicators 2007-201536
Telecommunications 37
Table: Telecoms Sector – Internet – Historical Data & Forecasts 40
Table: Telecoms Sector – Mobile – Historical Data & Forecasts 40
Other Key Sectors 41
Table: Food and Drink Sector Key Indicators41
Table: Defence and Security Sector Key Indicators41
Table: Autos Sector Key Indicators41
Table: Infrastructure Sector Key Indicators42
Table: FREIGHT TRANSPORT Sector Key Indicators42
Table: Oil and Gas Sector Key Indicators42
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Second Half Risks
TABLE: GLOBAL ASSUMPTIONS43
Table: EMERGING MARKETS AGGREGATE GROWTH44
Table: DEVELOPED STATES REAL GDP GROWTH FORECAST45
Table: REAL GDP GROWTH CONSENSUS FORECASTS45

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