2024: a Year of Global Uncertainties; Equilor Advises Prudent Investment Strategy


From left, Dániel Kovács, Bálint Szécsényi, and Zoltán Árokszállási.

According to the annual outlook analysis by Equilor, 2024 could be marked by uncertainty due to ongoing geopolitical tensions and elections affecting billions of people worldwide. While domestic inflation in Hungary has significantly decreased, the National Bank of Hungary (MNB) may accelerate the pace of interest rate cuts, considering the still substantial real interest rates achievable.

A crucial topic in Hungary’s economic sphere this year will be the growth rate, as the government prioritizes stimulating investments and invigorating growth. Equilor Investment Ltd. forecasts that the Hungarian economy will recover from recession in 2024, with GDP potentially expanding by 3.2%. Meanwhile, the Hungarian forint may slightly weaken compared to current levels, hovering around 395 HUF to the Euro by year-end.

The global economy faces numerous uncertainties in 2024: more than four billion people will go to the polls this year, with the May EU and November U.S. elections being of particular global significance. Within the EU, essential questions are whether the changes will further slow integration or make decision-making processes even more cumbersome.

Among the expected consequences, a reduced emphasis on green issues, a likely decrease in support for joint economic assistance within the EU, and a halt in further budget expansion are notable possibilities, the banking and investment specialist firm says.

Current insights suggest a likely rerun of the 2020 U.S. election between the present and previous presidents, Democrat Joe Biden and Republican Donald Trump, with Trump currently slightly ahead. If the Republicans win, a further escalation in deglobalization, tax cuts, more stringent immigration controls, and a rollback in decisions prioritizing climate protection and sustainability can be expected.

Moreover, the new president might exert increased pressure on the Federal Reserve for interest rate reductions, potentially leading to inflation growth. Besides political uncertainties, geopolitical tensions (Taiwan vs. China), armed conflicts (the Middle East), and wars (Russia-Ukraine) contribute to uncertainties in global money markets. At the same time, year-end 2023 saw stock indices rise primarily due to global interest rate cut expectations.

Hungarian Growth

Zoltán Árokszállási, the lead analyst at Equilor, shared insights into the economic trajectory for Hungary in 2024.

“After the downturn we experienced last year, there’s a strong potential for the Hungarian economy to demonstrate substantial growth,” Árokszállási commented. “This growth is likely to be underpinned by an increase in internal demand, which should be bolstered by the rising real wages, even in the face of persistently low consumer confidence.”

He also pointed out the role of lower interest rates in stimulating loan uptake but cautioned that state investments might not see significant growth this year.

“While we’re optimistic about Hungary, the overall economic prospects across Europe don’t seem particularly bright at the moment,” Árokszállási added.

However, the lead analyst noted that the realization of manufacturing investments started in recent years, and an accelerated flow of EU funds to Hungary could mitigate this. Last year’s nearly 6% GDP proportional budget deficit doesn’t offer much scope for stimulating the economy, but noticeable growth can be achieved without intervention, and the funds allocated for utility cost reduction may be less than last year.

The deficit should reduce almost automatically from last year, with Equilor expecting it to be around 4.7%. As a result, achieving more than 3% real GDP growth this year seems feasible. Inflation had decreased to 5.5% by December, a significant drop from the 17.6% annual average in 2023, allowing the MNB to further cut interest rates, possibly at a faster rate.

According to Árokszállási, a key question is how long the interest rate cut cycle can last, as the current base rate of 10.75% is far from Equilor’s expected average inflation of 5.3% for 2024. The analysis indicates that long-term inflationary processes remain uncertain; Equilor forecasts a 6% base interest rate by year-end.

The Hungarian forint is subject to opposing forces: Hungary now has access to a portion of EU funds, and the interest rate differential compared to global rates remains significantly in favor of the forint. This could decrease rapidly, so while some short-term strengthening is not ruled out, the Euro exchange rate could be around 395 HUF by the end of the year.

Keeping Powder Dry

Due to the uncertainties of 2024, Equilor’s analysis suggests that investors should “keep some powder dry,” i.e., keep a part of their savings in relatively high-interest money market instruments, prepared for a potential stock market correction.

For Hungarian household savings, several series of Premium Hungarian Government Bonds (PMÁP) will pay significant interest in the first quarter, so it’s advisable to consider now where to invest these amounts. The currently available 9.9% interest PMÁP is extremely attractive in light of decreasing inflation, though other options, including stock market investments, may become more appealing.

The U.S. stock markets currently appear more expensive than their European counterparts, according to Equilor’s analysis. Significant revaluation has occurred in the markets since late October last year, following the expectations of interest rate cuts, leading to a considerable increase in the valuation of U.S. stocks, surpassing even the German or Hungarian indices.

Currently, Hungarian stocks are showing strength, with several blue chips exhibiting strong narratives. For example, OTP Bank could have had an exceptional return on equity last year, while the rejuvenating Hungarian economy and well-performing foreign subsidiaries could continue to bring substantial profits for what is Hungary’s highest traded stock.

The banking sector in Central and Eastern Europe also appears intriguing, with banks in the region potentially benefiting from an expected economic growth that will be more robust than this and next year’s Eurozone outlook. In the south, Greek banks still seem undervalued, with promising growth opportunities.

Among the four traditional blue chips on the Hungarian market, Magyar Telekom displayed the most remarkable performance in recent months. The company is implementing a 15% rate increase in 2024, signaling strong pricing power, which might have contributed to the recent rise in its stock price, in addition to a significant revaluation last year.

This article was first published in the Budapest Business Journal print issue of January 26, 2024.


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