EUR/HUF likely to be anchored closer to 310 over the coming quarters

Hungary’s GDP is expected to have slowed down significantly to 1.3 percent in 2016 after rising a robust 3 percent in the previous year. Going forward, Hungary’s economic growth is likely to recover in 2017.

PMI's though not very reliable are hovering between 51 and 57, suggesting expansion. Also, EU fund inflow is expected to rebound steadily through 2017. The corporate tax rate for major firms was halved to 9 percent in January from 19 percent. Many auto majors have stated major growth projects for 2017.

“Hungary’s trend GDP growth rate is 2 percent-2.5 percent – against this background, we forecast GDP growth to speed up from 1.3 percent in 2016 to 2.6 percent in 2017, then moderate back to 2.2 percent in 2018”, said Commerzbank in a report.

Spike in global yields in the run up to last month’s US Fed rate hike is seen reversing somewhat in the last few weeks. The reversal has supported most CEE region currencies, including the HUF. Hungary’s strong current account surplus position along with recent upgrade by rating agencies to an investment grade credit likely to keep HUF better insulated.

"Political risks between Hungary and the rest of the EU look relatively symmetric over the coming year, which suggests that EUR/HUF will be anchored closer to 310 over the coming quarters," adds Commerzbank.