D&B rates Hungary as moderately risky, sees negative impact from Ukrainian crisis.

By bne IntelliNews March 7, 2014

Hungary’s economy is rated as moderately risky and the country's overall risk profile has been on an improving trend, commercial information and analysis company Dun & Bradstreet (D&B) said in its March 2014 RiskLine report. The rating (DB4c) implies a significant uncertainty over expected returns.

According to the report, the legal barriers to entry into the Hungarian market are low in theory but higher in practice. The government is imposing barriers to entry, such as price controls, as well as windfall taxes on foreign firms operating in strategic sectors (such as utilities and banking). The authorities have also approved restrictions for foreign citizens to acquire real estate and farmland.

Regarding risk factors D&B expect political instability in Ukraine to have some negative impact on Hungary’s economy in the short-term through trade, investments and capital flows. Trade relations have already been hampered due to blockage of road infrastructure with impact on border crossing. In addition, in case of weakening of the value of Ukrainian hryvnia this will weaken demand for Hungarian exports to Ukraine, which accounts for approximately 10% of Hungary’s trade surplus. In terms of investment, the main risk is to the safety of Hungarian assets in Ukraine. Concerning the capital flows, instability in Ukraine could provide a catalyst for investor flight from emerging Europe amidst fears of a Ukrainian default, D&B said.

In longer-term D&B sees marked risk for Hungary if Russia increases pressure on Ukraine by withholding gas deliveries. This would have negative impact on energy supplies to Hungary, which receives the vast majority of its natural gas via the pipeline connecting the two countries, the report reads. 

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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