Abstract
The latest industrial production data confirm our view that Hungary is heading
for a deep recession in
2009, with little relief visible either
domestically or from the export sector, and we have subsequently
revised
our GDP growth forecast down to -3.4%. We anticipate a modest recovery beyond
2011, but
caution that over the long term, trend growth will continue to
underperform relative to Central European
peers.
Hungarian industrial
production data for November showed the fourth consecutive month of
contraction,
with output falling by a whopping 12.2% year-on-year (y-o-y)
(10.1% when adjusted for calendar
effects). This is yet another leading
indicator of the Hungarian economy' s rapid deterioration. On the back
of
this release, and given BMI' s downgrade of our 2009 eurozone GDP growth
forecast to -1.6%, we
have revised down our Hungarian 2009 growth
forecast. We now anticipate a deep recession, with GDP
growth of -3.4%
replacing our previous moderate recession forecast of -0.8%. Moreover, we
expect
growth to remain weighed down beyond 2009, and forecast GDP growth
of only 0.1% in 2010, down
from the 2.6% that we previously
anticipated.
A key factor negatively impacting the Hungarian economy in
2009 will be the recession in all key
external trading partners. Alongside
the weak external demand outlook, domestic consumption' s
contribution to
GDP is also likely to be negative in 2009. We have revised down our private
consumption
growth forecast still further, to -4.0% from -3.0%, and
anticipate only a modest recovery to zero growth
in 2010. Gross fixed
capital formation (GFCF) is the final expenditure component of GDP that is set
to
suffer over the coming year, and we have revised our 2009 GFCF growth
forecast down to -5.0% from
zero, with zero growth also likely in
2010.
The practical effect of these sharp across-the-board economic
contractions will be to depress GDP per
capita below 2008 levels until at
least 2011. This will result in significant economic hardship for both
Hungarian firms and ordinary citizens, and could in turn lead to an uptick in
domestic political and social
tensions.
On monetary policy, our core
view is for the National Bank of Hungary to continue a trend of
incremental easing throughout 2009 as disinflation continues apace and a
recession bites harder. We
target a policy rate of 7.50% by end-2009,
although we caution that a sharp weakening of the forint could
yet prevent
further rate cuts.
Hungary' s current account deficit is set to contract in
2009, as the recession and declining capital inflows
cause imports to fall
faster than exports. We caution, however, that even with the current account
deficit
narrowing, the drying-up of FDI and foreign bank lending into the
economy will elevate risks to the
country' s balance of payments stability
into 2010.
In Central and Eastern Europe, we profile 22 multi-national
insurance companies. In alphabetical order,
these are AEGON, AIG, Allianz,
Aviva, AXA, Cardif, ERGO, Eureko, Fortis, Generali, GRAWE,
Groupama,
HDI-Gerling, HSBC Insurance, ING, MetLife, Prudential Financial, QBE, RSA,
UNIQA, Vienna Insurance Group and Zurich Financial Services.
We also
discuss the regional presence of Belgium' s KBC and Austria' s Erste Bank
through a number of
insurance subsidiaries and explain the importance, for
each of the various countries, of purely domestic
firms.
We estimate
that, over the course of 2008, total premiums in Hungary fell by 1% to
HUF922,375mn.
Non-life premiums rose by 5% to HUF442,676mn, while life
premiums fell by 6% to HUF479,699mn.
Between now and the end of the
forecast period, we expect that annual non-life premiums will rise by
HUF133,360mn, while annual life premiums should rise by HUF163,013n.
Growth in non-life premiums should be driven by the general growth in nominal
GDP: we are assuming
that non-life penetration remains constant at the
current level of around 1.5%.
Growth in life premiums should be driven by
the change in the overall population and a rise in life density
from
US$254 to US$350 per capita.
BMI' s Insurance Business Environment Rating
(IBER) is 59.6.
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