Hungary is experiencing the highest inflation in the EU outside the Baltic States, the worst depreciating currency in the bloc, and the prospect of recession next year.
The country's position is weaker than its Central European neighbors because of its high fiscal and external deficits and its bigger foreign currency external debt load, all of which contribute to the deteriorating sentiment towards the forint, which has lost 13% of its value so far this year.
"Hungary's swelling external imbalance – the current account deficit is wide (currently over 6% of GDP) – makes the economy especially vulnerable to this kind of shock. And Hungary's external debt denominated in U.S. dollars and euros is higher than in its peers, meaning that currency depreciation hits it disproportionately," Oxford Economics says.
The research paper is available here.
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