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Hungary - Recession warning for 2012

Fitch warned that approximately 1% decline could be expected in Hungarian GDP for the following year.

14 December 2011

Time has come : Recession warning for 2012 in Hungary

Yet time has come but the government believes in moderate growth and think it is more likely than recession in 2012


Some economic growth in the eurozone economy might be possible and Italy of four largest eurozone countries will be only in recession all next year - said in recently issued world economic forecast by Fitch Ratings. The largest European credit rating's analysts give one-third chance that the eurozone in 2012 is most likely to be in recession and Hungary would also be in recession in this case.

In Fitch's latest quaterly projections contains detailed and comprehensive forecast for complete estimate of GDP growth in eurozone that has reduced sharply from the current 0.8% to 0.4% for the next year. Fitch has revised down its GDP growth forecast of Italy's economic performance, 0.5% decline in 2012 and economic stagnation in 2013. In Germany, however, the company expects 0.9% real growth in the next year and 1.6% economic expansion likely in 2013. Fitch Ratings' economists pointed out in London, however, it is estimated as high as one third-chance that entire eurozone will be in recession in 2012.


Shock scenario

But other important companies in London are actually assured eurozone recession in their next year's forecast.

The City's one of the largest investment banking group, Barclays Capital compiled a comprehensive quarterly prediction for investors where they are waiting 0.2% decline in entire eurozone instead of previous projections of 1.6% economic growth for 2012.

Shock scenario in EU

Economists from Resarch department of Morgan Stanley also reduced 0.5% growth and 0.2% decline anticipated for 2012 in eurozone.

UBS, the Swiss financial and banking services group's investment and economic analysis division in London is even pessimistic: its estimation of 0.2% growth has changed 0.7 downturn for economic performance of eurozone in 2012.

Captial Economics is also among the most pessimistic analyst houses in London that predict a recession for the next two years in the monetary union of EU. Their economists' recent assessment says that 1% decline in the next year and 2.5% decline for 2012 expected in eurozone. Capital Economics think overall decrease in economic performance would mean a similar financial crisis to recession of EU in 2008-2009.

Fitch Ratings in its global forecast for the eurozone has also developed a "shock scenario" which takes more protracted financial stress in EU into account than the company's base case projections.

Among elements of this scenario, we can face household and corporate loans' interest rates steep - from 0.8% to 3.% in avarage - rise as well as similar increase in yield of long term bonds. Except Germany, which would secure investors' refuge in shock situation. In addition, shocking fall in stock prices - in this scenario - would reach 30% in periphery of the European Union whilst 15% sharp decline on stock market would be possible in central members in the monetary union of EU as well as in the Great Britain and the United States.

In this case, GDP in eurozone would be declined with 0.6% that would be worse with 1% than 0.4% economic growth in the base case scenario for next year prognosis according to Fitch Ratings' simultation model.


Stagnated economy is the best scenario in 2012

Stagnated economy is the best scenario for Hungary in 2012


Widely divided views


In the City, widely divided analyst views on chances of recession in Hungary.


As a result of eurozone shock scenario in 2012, Fitch experts anticipate 0.7% decline in GDP that would be worse with 1.2% than credit rating analysts' expectation of 0.5% growth for the next year in Hungary.

The best scenario for Hungarian economy in 2012 if it was stagnated, considered in Barclays Capital's new prognosis. However, 0.1% GDP growth for full 2012 estimated in attached table to their forecast.

Capital Economics, however, now predicts 1.5% downturn in Hungarian economy for 2012, 0.8% decline in Czech Republic and probable 0.5% decrease in GDP of Romania in the next year.


Answering a question today, Mihály Varga, state secretary at the Prime Minister’s Office, said the government believes in moderate growth next year and think it is more likely than recession: "today it is much more realistic what the Prime Minister said in an interview on Sunday, namely that a growth of around 0.5% could be projected for 2012."


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