“Hungary continues to experience macroeconomic imbalances, which require monitoring and decisive policy action,” read the results for Hungary within in-depth reviews of the economies of 17 member states. 

“In particular,” noted analysis authors, “the ongoing adjustment of the highly negative net international position, the high level of public and private debt in the context of a fragile financial sector and deteriorating export performance continue to deserve very close attention.”

The assessment stated that Hungary’s net international investment position had been improving, but mainly because of private sector deleveraging. Export performance was called “lackluster” and the EC report commented that encouraging signs in manufacturing would not be enough by itself to produce a turnaround.

The EC acknowledged a decline in debt level in Hungary, but said risks related to private debt remain. Deleveraging has been hindered by a high share of distressed borrowers, a depressed home market, a fragile financial sector, the big share of foreign currency-denominated loans and prevailing business uncertainty, it said.

“Restoring normal lending to the economy in a sustainable manner would require improving the operating environment for banks,” reckoned the analysis.

The EC stated that Hungary’s high level of state debt was “another important source of concern.” It noted “substantial improvements” in the structural fiscal balance, but said a weak forint, poor growth potential and elevated financing costs had kept the debt from declining.

Finally, the ‘Commission estimated that Hungary’s structural balance will deteriorate in 2014.