Despite our outlook for the developed countries is rather gloomy, Hungary is currently in an exceptional situation, Tóth said. Investors welcomed the government’s recently announced reform package. Increased trust indicates that markets clearly expect that the government will be able to complete the reform measures starting already in the second half of this year. Hungary’s CDS spread was below 240 today and forint has strengthened to about 260, he noted.
“We expect that GDP growth will reach 3% in the upcoming years,” Tóth said. The Széll Kálmán Plan is expected to boost domestic consumption through the changes of the tax system to make economic growth more balanced. Demand for forint assets has grown to HUF 2800 billion. Government deficit could be below 3% from next year without the one-off revenues, due to the effects of the reform package. On the downside, unemployment is still high, at 11.5% and retail trade has not show an improvement either.
“We believe that the MNB will not change the current 6% level of its base rate,” Tóth said. He thinks that the new Monetary Council members will not politically influence the council’s decision.
On the recovery
The Hungarian economy is on the recovery in certain areas, however, there has been no improvement in others, analyst Bálint Török said. The main driver industrial output growth are still electronics and vehicle manufacturing. GDP growth was already positive in the past three quarters, he added.
One of the biggest problems is that the Hungarian banking sector has become extremely prudent, Török said. Whatever the banks say, there are still no loans available in Hungary. He pointed out that loans provided by the Hungarian banking sector dropped by HUF 1500 billion or 5.5% of GDP in 2010. Non-paying loans are at 8.1% of the total at commercial banks and at over 16% at saving associations.
“We think that the bank tax will remain in place as well as the crisis taxes,” Török pointed out. Without OTP Bank, the banking sector was in the red last year.
Stronger forint
The turning point for the Hungarian forint took place on March 15, said department head Andrej Taraczky. On that day, there was a serious correction on both the global currencies and equities markets due to the earthquake in Japan, but the forint “remained quiet”. This was a very positive message to investors, he added.
“We expect further strengthening in the short run,” said. The optimism is reflected in both the EUR/HUF and the EUR/CHF rates. The strengthening will appear in this month’s installments; however, this will not immediately boost household consumption.
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