It could be a lot worse than expected, Hungarian economy may plummet too
Analysts keep evaluating new data and revise their macroeconomic models to see what the coronavirus (COVID-19) pandemic will do to economies. On Thursday, J.P. Morgan has published a research note on Emerging Markets, which may not contain a country breakdown of detailed analyis, it does include updated estimates on specific markets.
Last week J.P. Morgan concluded that the COVID-19 shock would produce a global recession as nearly all of the world contracts over the three months between February and April. This week’s reports, which show a collapse in China’s activity in February and in survey readings for March elsewhere in the world, validate this view.
"We now expect a 1H20 recession in EM ex. China as containment is stepped up and as DM contracts," the U.S. bank said. EM central banks are expected to ease more overall as growth concerns and lower inflation trump weaker FX rates, and budgetary support is likely to be large too, even in countries where fiscal space is generally limited.
for us, naturally, the bank's estimates for hungary are the most important, and j.p. morgan projects 3.0% gdp contraction for 2020.
It would go like this:
The shut-downs and production stoppages announced and implemented in the last few weeks (and those that will be in effect only from next week) could lead to a 5% GDP contraction in the first quarter over the end of 2019. But the really heavy blow will be suffered only in Q2 when J.P. Morgan expects a 14% contraction. A major recovery should follow in the second half of the year, but annual GDP growth is still forecasted to be 3.0% below the base period's print.
The rebound, of course, would require the spread of COVID-19 to be contained and stopped in the foreseeable future. Monetary and fiscal stimulus would also need to reach the desired positive impact. If the recovery starts even later, the Hungarian economy could fare even worse this year.
J.P. Morgan expects the aenemic economic performance and the stimulus measures to boost Hungary's budget deficit too, projecting a 3.5% of GDP shortfall for this year, against the (currently) official target of 1.0%, and even the 2021 estimate is for a 3.1% budget gap.
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