D&B says Hungary may risk economic growth in long-term

By bne IntelliNews May 22, 2014

Hungary’s government will have a free hand to pursue its economic programme following the election win of incumbent Fidesz party in April, commercial information and analysis company Dun & Bradstreet (D&B) said in its May 2014 RiskLine report but warned that remains to be seen whether the economic model of PM Viktor Orban can deliver growth and opportunity in the longer term.  

Latest macroeconomic data showed that the Hungarian economy has proved to be one of the top performing in the EU with the GDP rising 2.7% y/y in Q4 2013. Employment has increased by 250,000 since 2006 as the government brings the long-term unemployed into public-works’ schemes and the government is enjoying a high degree of solvency due to cutbacks in spending, ready access to international money markets and steady inflows of EU structural funds for public investment. All of this is fuelling consumption and creating opportunities for investors and exporters to expand sales to Hungary, D&B said.

However, the government’s policy of bringing ‘strategic sectors’ of the economy such as energy, utilities and food back under national control has weakened investor confidence. This combined with the fact that the government does not have a decisive grip on public finances questions its ability to maintain economic growth over the long-term.

Hungary’s economy is rated as moderately risky and the country's overall risk profile has been on an improving trend, D&B said. 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’s recent Investment Act prevents investors from outside the EU from acquiring real estate and imposes tight restrictions on the right of ownership of farmland, even for citizens of other EU member states.

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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