Emerging market analysts polled by MTI's London correspondent offered a mixed picture for Hungary's economy in 2007, although pessimists were in the minority.
Analysts at JP Morgan were among the majority of analysts, who saw a brighter outlook for Hungary in 2007. They said Hungary's deficit target for 2007 was "realistic in broad terms" considering the effect of government austerity measures and projected a three-percentage-point reduction in the general government deficit. They called the government's 2007 revenue target "conservative" and noted that several mechanisms had been put in place to ensure the deficit target is met. The analysts' outlook improved markedly after Standard and Poor's upgraded the outlook for Hungary's sovereign rating from "negative" to "stable" shortly before the winter holidays.
JP Morgan projects household consumption in Hungary to fall 1% in 2007. Imports will grow at a slower pace and exports will remain the driving force of the economy. Hungary's economic growth will slow to 2.5% in 2007 from 4.0% in 2006. But it will speed up to 3.0% in 2008. Weakening import demand will cause Hungary's current account deficit to narrow to 5.7% of GDP in 2007 and 4.7% of GDP in 2008. JP Morgan estimates the c/a deficit was 7.1% of GDP in 2006. The analysts note that Hungary net external financing requirement could fall as far as 4.5% of GDP in 2007 taking into account EU monies. They say Hungary's base rate will peak at 8.50%, compared to the current 8.00%, around the middle of 2007, then fall as much as 1.00% after inflation slows.
Analysts at BNP Paribas were among the pessimists when asked about Hungary's outlook for 2007. They said the delay in Hungary's joining the eurozone was "especially bad news" and noted that government austerity measures would cause economic growth to slow. They said the National Bank of Hungary's efforts to keep inflationary expectations from boosting prices would result in the base rate peaking at 8.75% in April, then falling just 25bp to 8.50% by year-end. By the end of 2008, BNP Paribas sees the rate falling just 100bp to 7.50%. The analysts said the government's steps to reduce the deficit had been evidenced in a strengthening of the forint over the past months, but they warned that a correction could be seen which would put the forint around 260 to the euro at the end of Q1 2007. (Mti-Eco)