Hungary was the fastest growing economy in the EU in Q2 and its short-term outlook looks good but it is unlikely to sustain this growth rate for the rest of 2014, commercial information and analysis company Dun & Bradstreet (D&B) said in its October 2014 RiskLine report.
On the upside, orders in industry and construction are continuing to rise, and economic sentiment is high. On the other hand, the strength of the German economy is declining, which would result in weakening of external demand for Hungary’s industry. In addition, reciprocal Russia-EU sanctions will have both direct impacts on Hungary's export sector and indirect effects via damage to Hungary's export markets in the EU.
Referring to domestic business environment, D&B said that the government intervention continues to weigh on the profitability of some foreign investors. Measures such as the recently introduced legislation obliging banks to compensate borrowers for unilateral changes in contracts and exchange rate margins, will continue to undermine investor confidence in Hungary and potentially limit future FDI.
However, in the long term the measures would lighten the financial burden on households and firms, freeing them to divert more of their incomes to consumption and investment. This in turn will boost domestic economy, offsetting a potential slowdown in the export-orientated industrial sector.
In its regular risk assessment, D&B sees Hungary's economy as moderately risky. The country's overall risk profile has been on an improving trend. The rating (DB4c) implies a significant uncertainty over expected returns.
The DB risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two-year time horizon.
The indicator is a composite index of four over-arching categories: political risk, commercial risk, external risk and macroeconomic risk. It is divided into seven bands, ranging from DB1 through DB7.
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