Analysts: Hungary's growth may suffer from Ukraine crisis
Hungary's economy is set to struggle in the headwind stemming from the Ukraine crisis combined with a slowing eurozone, according to London-based emerging markets economists.
In its daily emerging markets report released to investors in London, BofA Merrill Lynch Global Research – the research unit of Bank of America-Merrill Lynch – said its forecast of 3% growth this year already assumes a sharp slowdown in the second half.
Protracted tensions surrounding the Russia-Ukraine dispute may extend the negative drag into 2015, "shaving around 1 percentage point off our 3% growth estimate, due to lower exports and less investment". In such an event, inflation may not return to the 3% target by the end of 2015 as currently expected, but only in 2016, Bank of America-Merrill Lynch said.
However, the combination of the measures planned to ease the FX debt burden on households should help reduce the economic vulnerability of Hungary. Firstly, the NPL ratio should fall across sectors in the coming year, including among households where probably the ongoing legal dispute led some borrowers to stop servicing debt.
Secondly, the conversion of the FX loan stock will likely take place with the support of the Hungarian central bank. In the "boldest scenario" where all mortgage loans (approximately €11 bln) are converted in one go, FX reserves would fall temporarily to €24 bln, covering still 3.5 months of imports, down from 5 months currently. However, "we note that this will likely be a dip, since EU funds should top up reserves again by €5-6 bln next year", Bank of America-Merrill Lynch's analysts said.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.