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Hungary flirting with recession under euro turmoil pressure, says City

Hungary’s economy is set to flirt with, or may even slide back into, recession next year under the pressure of a deepening eurozone debt crisis, London-based emerging markets analysts said on Wednesday.

In its latest Emerging Markets Quarterly report released to investors in London, Barclays Capital said it has revised its euro area growth forecast for 2012 to a 0.2% GDP fall from the 1.6% growth in its previous Quarterly.

"Such a growth shock is expected to spill over 1:1 into most of Central and South Eastern Europe with a relatively short lag".

In Hungary, although Q3 growth "surprised somewhat on the upside, we expect GDP (growth) to be a mere 1.5% for 2011 as a whole and about zero for 2012 at best".

A forecast chart attached to the report suggests that Barclays Capital expects Hungary’s economy to grow 0.1% next year.

In separate emerging markets forecast released on Wednesday, Capital Economics, a major London-based financial and economic consultancy, said that the deepening turmoil in the eurozone is likely to drag large parts of emerging Europe into recession over the next year and there is a growing risk that some countries will experience a full-blown financial crisis.

Contagion from the euro crisis will come via several channels, one of which is trade and the most open economies of Central Europe, notably Hungary, Slovakia and the Czech Republic, are "especially vulnerable on this front".

The "potentially most explosive channel of contagion", however, is via the banking sector – specifically that parent banks in the West limit short-term funding to subsidiaries in the East. "Hungary, Ukraine, Croatia and Bulgaria look most vulnerable to this".

Consequently, "we think it more likely than not that the Hungarian economy will enter recession next year and we have pencilled in a (GDP) contraction of 1.5%" for 2012, Capital Economics said.