This pessimism on Hungary's growth outlook is really surprising - City analysts

Attard Montalto said the government’s efforts during the crisis management are laudable, but he was much more critical about the speed the decisions are made at and the insufficient background work before the decisions are made. He noted that the government is overly aggressive in its policymaking, mentioning as an example that currently it strives to sort out the problem of foreign currency mortgage debtors within six months. From the investors’ point of view the key question remains what collateral damage the cabinet will cause with its actions, he said.

On the slide below Attard Montalto presented how he sees the past 18 months of the government and what he thinks led to where we are today. At a certain point in time the cabinet has finally realised the damages of its one-off measures (e.g. the sectoral taxes), the deceleration in capital inflow and their impacts on growth. This way it has understood that the implementation of far-reaching reforms will hit obstacles and that prompted it to embark on even more unorthodox measures, such as the lump sum repayment of FX debt at below-market rates.

Attard Montalto said it remains a question whether the forint weakening impact of the measure can be offset by a rate hike by the central bank. He added that the government has no choice but to see its fiscal plans through, which could lead to a drop in its popularity and perhaps to political destabilisation.

He said there will be no meaningful capital injection in Hungary in the next two to three years.

“When you have investors looking elsewhere (due to a number of factors such as the sectoral taxes, etc.) it weights down on potential growth. [...] Hungary is too scary, there are too much uncertainty about the tax regime for instance," he said.

Timothy Ash, analyst at the Royal Bank of Scotland, said he has turned rather negative about Hungary over the past few months, while he admitted that he was not too upbeat even before. “Three months ago I saw the glass half full, now I see it half empty," he said, noting that he gave kudos for the government when it presented its package of structural reform measures, the Széll Kálmán Plan.

Ash stressed that when it comes to reform programme the emphasis is always on how it is implemented. And this is one of the weakest points in the government’s work, he added. The other is that the measures “are killing" growth.

The economist noted that the departure of deputy state secretary András Kármán - who also holds a presentation at today’s conference - from the Economy Ministry was a “hit" for the international investment community that clearly has a negative view on the final repayment scheme.

He urged “both sides", i.e. the banks and regulating authorities, in the foreign currency lending problem to consider their responsibility in creating this problem, and that the burdens should also be born by two parties, the lenders and the state and not just the banks.

Raffaella Tenconi at Bank of America Merrill Lynch said she agreed with what her peers said before her, adding that it must be given to the current government that the current and the previous governments pushed through a lot of reforms and carried out a major fiscal adjustment. So in the past few years the turnaround was clearly favourable. These have allowed Hungary to be “in a fairly favourable position".

Tenconi said, however, that “there have been too many unorthodox measures" recently, adding that the government should go easy on this, because the majority of banks are held by foreign owners.

With regard to asset prices the analyst said she was negative, pointing out that the biggest risk is if capital flight starts on the government securities market. In this case “the vicious circle may become too large" and in the end there may be not enough meaningful players on the buying side.

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