Abstract
Hungarian GDP contracted by 2.3% in real annualised terms in Q408 according to
final national accounts
data, a worse performance than the 2.0%
contraction suggested by the preliminary estimate. This brought
annual GDP
growth to 0.5% in 2008, by far the weakest outturn in Central Europe.
Moreover, we
reiterate our long-held core view that the economic
deterioration witnessed in Q408 represented only the
preamble to a much
more severe recession, which we see lasting throughout 2009 and well into
2010.
In light of both the Q408 figure and an array of negative leading
economic indicators, we have slashed
our 2009 Hungarian GDP forecast, and
now expect the economy to contract by 6.4% in real terms. This
will
represent by far the worst annual economic performance since 1991 – a
year in which the Hungarian
economy contracted by 21.6% as it undertook
the painful transition from communist state planning to
market capitalism.
We also hold to our forecast for growth to be only barely positive, at 0.1%,
in 2010,
which will primarily be attributable to the low base effect
rather than any meaningful economic recovery.
The Hungarian property
market has been impacted by the slowdown in global economies and the
significant reduction of credit available to property players. As a result
fundamentals have deteriorated
across the property sector, impacting
valuations. Smaller – and therefore perceived higher risk –
markets
such as Hungary have been hit significantly by the lack of
available credit in the market. Transactions in
the direct market have all
but dried up so far in 2009. According to surveys from housing developers
in
Budapest, housing sales have dropped more than 50% from the levels seen
a year ago. House prices in
Budapest have dropped up to 30% according to
Colliers International; however, in the less overvalued
areas the drops
have been around 10%.
We believe the Hungarian property market will remain
weak with limited transactions until 2010. It is
likely other markets such
as the leading markets of the UK and Europe will need to stabilise and
improve
before confidence improves in the peripheral markets in Eastern
Europe such as Hungary.
Bearing in mind the factors that contribute to
Hungary’s Real Estate/Construction Business Environment
Rating
(RECBER), we suggest that the following are the key issues to monitor for the
real-estate sector in
the coming year or so:
- The low level of
construction activity and its expected low rate of growth
- Bank lending
(or, more pertinently, the lack thereof). This has been a major constraint
on
construction activity
- Any clear sign of improvement in the state
of Hungary’s bureaucracy
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