Analysts slash Hungary growth forecast

Economic growth

The consensus estimate shows a 2.3% year-on-year output increase for Q2 2011, but the projections for later periods have come considerably lower, reports Portfolio.hu based on its recent poll. The market expects Hungary’s consumer price index at 3.3% in July, but the deceleration of the economy will rewrite CPI estimates sooner or later.

The extreme strengthening of the Swiss franc, the money market freeze and the rising fear of recession on developed markets can provide further impediments to economic growth in Hungary.

"The short-term business cycle indicators - retail trade, industrial production, new car registrations - all showed a decline on a quarterly basis. The only counterbalancing force could be expected from the agriculture’s side where an increase in crops is likely," Portfolio.hu quotes Győző Eppich, analyst at OTP Analysis Centre.

Regarding the outlook for beyond Q2, István Horváth, analyst at UniCredit noted that the full-year growth could be boosted by the last quarter of 2011, primarily as a result of the completion of auto industry investments and the start of production. The general trend, however, is likely to remain unchanged.

Zoltán Török, analyst at Raiffeissen Bank in Budapest, believes that the worsening external environment will lead to lower export dynamics despite the car industry investments and capacity boosts.

Inflation

No meaningful change is expected in Hungary’s CPI in July compared to the June print. Analysts at CIB Bank pointed out that the base effect is working against the 12-m indicator, but on a month-on-month basis they do not believe the rise will be larger than 0.1%. Fuel and energy prices could have fuelled inflation in July to some extent, but seasonal food prices and clothing prices likely have dropped a lot.

Middleditch expects inflation to start to fall markedly in Q4, "as the effects of the global commodity price shock unwind and domestic demand remains lacklustre."

Despite the expected moderate rise in inflation in the autumn months (based on the 2012 outlook) a rate cut may be carried out, but amidst the current market conditions the National Bank of Hungary (MNB) will not apply monetary easing, prioritising financial stability aspects, analysts at CIB said.

Magdalena Polan, analyst at Goldman Sachs, expects another acceleration in inflation in Q4 on the account of waning base effects and again rising fuel prices, despite this summer's decline in inflation, which, she believes, is temporary.

"But afterwards, we see inflation trends diverging, mostly in line with planned tax changes, reaction to higher oil prices, and the underlying domestic demand developments. In Hungary, where we believe inflation is most sensitive to fuel and energy prices, we expect inflation to remain above the target in 2012 and even re-accelerate towards the end of the year, in line with our strong view on oil prices. Pass-through into other prices would then keep core inflation also elevated," she added.

However, she noted that global and local growth developments could alter this view.

"The biggest uncertainties for short-term inflationary processes lie in food prices. In this respect, the July CPI print could be of great importance since it will be the first from which we’ll be able to draw conclusions on how gradually the price shock in the agriculture will peter out," commented Eppich at OTP. The methodological change introduced by the Central Statistics Office (KSH) in early 2011 only adds to uncertainties.