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2020/03/17 / Erste Group Research

Worsening prospects due to Coronavirus shock

Following annual GDP growth of 4.9% in 2019, we have reduced our forecast for this year's GDP growth to 1.1% y/y, due to Coronavirus crisis. Fast spread of Covid 19 strongly burdens global economies and prospects of exports have worsened. Internal consumption could also slow rather significantly, however it would preserve its positive contribution. After its January peak of 4.7% y/y, inflation is set to reverse to the MNB's tolerance range from March. Earlier upside risks have considerably mitigated, due to the ongoing economic slowdown.

Although at the February rate setting meeting, the MNB hinted at tightening, in the current situation we do not expect such kind of measures. The MNB keeps actively managing the short end of the interest rate curve in order to keep BUBOR rates at relatively low levels. Long-term bond yields jumped recently, as spreads over major bond yields widened. After recent turmoil, spreads are expected to somewhat narrow and in the longer run, yields should move in parallel with major bond yields. We do not expect a unanimous trend in movements of the domestic currency: following current market turmoil, the EURHUF could approach our 335 point estimate.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusHungary
Currency in focusHungarian Forint
Sector in focus-


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