JP Morgan said in its Emerging Markets Weekly report that “the large downside surprise in [the first quarter of 2012] … implies a full-year GDP decline of 1.2 percent versus our previous forecast of 0 percent”.
The latest fiscal tightening measures and contracting credit will further weigh on domestic demand in the coming quarters, the report said.
The weaker first-quarter GDP figures “[support] our forecast of 100 basis points in rate cuts this year, but delivery of those cuts will depend more on progress with IMF/EU talks and the related change in risk premiums on forint assets,” JP Morgan’s analysts said.
The EBRD also said in its updated regional forecast released on Friday that it expected Hungary’s economy to contract by 1.0 percent in 2012. This is, however, an upwards revision; the London-based lender had seen Hungary’s GDP contracting by 1.5 percent this year in its previous forecast published in January.