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2021/03/10 / Erste Group Research

Economy to recover visibly from late spring

The economy is set to rise by 4.4% annually in 2021, after declining by 5% last year. The stricter lockdown measures announced in March have made the short-term outlook uncertain. We still believe, however, that continued progress in the vaccination process will enable the opening of the economy in late spring. The revival of consumption from 2Q21 onward, acceleration of investments and solid external demand should support GDP growth this year. Upside risks to inflation have increased in Hungary. Meanwhile, the volatility of headline CPI rates may be rather large, stemming from the base effect and the likely unusual pricing patterns of the reopening.

The economic and inflation outlooks, coupled with the vulnerability of the forint, justify the cautiousness of the monetary policy. Our base forecast predicts stable short-term rates; however, risks pointing to a possibly earlier rate hike can be seen as high. We think that the MNB might react via changing the rate of its one-week deposit instrument if needed. Partly reflecting major bond market developments, local bond yields have increased rather spectacularly recently. We expect the 10Y bond yield to stabilize below 3% in the coming period, conditional on central bank support. Volatility on the bond market should increase, however.

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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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