Macro: COVID-19 Update Hungary: Why do we expect a milder crisis in Hungary?

The government relaxed lockdown rules, except in Budapest and in the surrounding Pest county. While national lockdown was ordered only at the end of March, the coronavirus already hit the economy in Q1 and the Q2 data is expected to be deep in the red. Only the construction industry suffered relatively mild losses so far. At the same time, labour market developments are quite worrisome, so the unemployment rate is expected to peak over 7%. The MNB does not need to worry about inflation, but the issue may revisit us in 2021 though. Recent market jittery caused significant turbulences on the HUF market with EUR/HUF moving up temporarily to 370. As opposed to global and regional trends, MNB needed to increase interest rates. This allowed for a swift stabilization. A series of monetary policy easing measures were launched in parallel, including a full-blown QE programme. Furthermore, the government implemented the usual crisis management recipe ingredients. The budget deficit should reach 6% of GDP in 2020 instead of the official 3.8% target. In Q1, we expect GDP to decline by 1.5% (qoq), but the magnitude of the economic collapse is seen to reach over 10% in Q2. For the whole year, we stick to our earlier call of a relatively modest 3.5% GDP decline, because of the expected and comparatively strong Q1, and the overall quite large economic package (officially estimated around 20% of GDP).

This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.