2022/03/10 / Erste Group Research |
Economy to slow after recovery, amid rising inflation pressure The outbreak of the Russian-Ukrainian war has created additional uncertainties, posing lower risks to GDP growth and higher risks to inflation. Last year's outstanding economic growth figures, coupled with a loose fiscal policy, create strong momentum for the beginning of this year. However, a longer-lasting war increases the likelihood of downside risks materializing. Due to the increased uncertainties and possible negative consequences of the war, we expect this year's GDP growth to decline below 5%. The mid-term outlook has also worsened - growth figures are set to be slower than 4% annually in the medium-term horizon. The MNB has been continuing its long battle against surging inflation. The monetary policy toolkit has remained rather complex. In the current setup, the rate of the one-week deposit facility determines effective rates. Upside risks to inflation and the vulnerability of the domestic currency imply further monetary tightening. We expect the policy rate and one-week depo rate to converge above 7%, probably in the first half of the year. As a result of the war, the forint hit a new historical nadir at 400 in early March. We believe that further rate hikes should help the stabilization of the forint at stronger levels against the euro. |
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Author | Erste Group Research |
Date | 2022/03/10 |
Language | |
Product name | CEE Country Macro Outlook |
Topic in focus | FX, Macro/ Fixed income |
Economy in focus | Hungary |
Currency in focus | Hungarian Forint |
Sector in focus | - |
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