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City analysts cut Hungary GDP forecast on weak Q4

Analysis

Hungary's economy is now likely to remain mired in recession this year after starting the year on a weaker-than-expected footing, London-based emerging markets analysts said on Wednesday. In their CEEMEA Spring Macro Outlook report released to clients in London, Morgan Stanley's economists said their new forecasts see the Hungarian economy contracting by 0.5% in 2013, down from their previous expectation of 0.0% GDP growth. Regardless, the central bank is “clearly on a mission to take rates lower, having already cut them by 175 basis points (bp) in this cycle, to 5.25% ... The low February CPI print is likely to pave the way for another 25 bp cut on March 26, to be followed by more in 2Q (to a) new rate trough of 4.50%.” Even with the euro-forint exchange rate above 300, “we think that the desire to take rates lower will trump currency weakness ... That said, our forecast is not particularly aggressive, as we are mindful of currency risks and think that even such a dovish MPC will struggle to take real rates lower than 1.5% or so,” Morgan Stanley said.

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