Experts’ grim prognosis for Hungarian forint: 450/EUR on the horizon?

In recent months, the Hungarian forint has demonstrated significant strength, yet its exchange rate hovers around 380/EUR, and indications suggest this trend is not poised for an immediate shift. Despite its stability at the 380/EUR level, experts anticipate a substantial weakening in the long run.

As reported by Tőzsdefórum, a Hungarian business-centric online news outlet, the forint’s current stability at the 380/EUR exchange rate level may result in a commendable 5% strengthening against the euro in 2023—a positive development.

However, analysts warn that 2024 may witness a notable forint weakening, although predictions dismiss the likelihood of reaching new historic lows.

Additionally, financial experts highlight that the Hungarian National Bank’s (MNB) monetary policy is the main influencing factor behind the fluctuation of the foreign exchange rate. And the MNB’s upcoming decision on interest rates in December is anticipated to lead to another probable decrease.

Zoltán Varga, an analyst of Equilor, told Világgazdaság that the interest rate cuts are expected to result in a gradual forint weakening. On the other hand, they are a crucial element in the MNB’s stimulus package. In other words, while advantageous for the business sector, as they facilitate cost-effective production in Hungary, they present challenges for employees receiving salaries in forint, particularly those wishing to make purchases in euros or acquire imported products.

Forint remains a highly volatile currency

Equilor projects an average currency exchange rate of 400/EUR in 2024, escalating to 405/EUR in 2025. Meanwhile, the Egyensúly (Balance) Institute predicts a range of 393-403/EUR for 2024 and 406-419/EUR in 2025. These are averages, and actual rates may fluctuate between 450/EUR and 380/EUR based on accurate prognosis.

The uncertainty surrounding EU funds adds another layer of complexity. While Hungary anticipates approximately EUR 1 billion in 2024, the disbursement of euro billions remains frozen due to rule of law concerns. Any positive impact on the forint hinges on the release of these funds, though the likelihood is deemed slim. Consequently, the forint remains responsive to developments related to EU funds.

Furthermore, external factors, including geopolitical events in Ukraine and Israel, the policies of major national banks worldwide and measures implemented by the Hungarian government, exert notable influence on the euro-forint currency exchange rate.

Read also:

• Hungary’s economic forecast: inflation, growth, and exchange rates – Read more HERE
• Central bank governor talks about euro introduction in Hungary – Details in THIS article

Investment volume falls 12.1 pc in Q3

In a recent report, the Central Statistical Office (KSH) revealed a notable annual contraction of 12.1% in Hungary’s investment volume during the third quarter. Released on Tuesday, this data also indicated a seasonally adjusted quarter-on-quarter drop of 2.2%. According to the KSH, nearly all sectors of the national economy contributed to this downturn, with a silver lining seen in increased investment volume solely within the manufacturing sector, public administration and a few smaller segments.

Specifically, the manufacturing sector experienced a promising 6.3% year-on-year growth in investment volume, contrasting sharply with a 21.6% decline in the construction sector. The total investment figure for Q3 reached HUF 3,781 billion, with the manufacturing sector accounting for a substantial HUF 1,202 billion. In response to these figures, the economic development ministry acknowledged external factors impacting investment trends in the third quarter. The ongoing war in Ukraine and the EU’s sanctions played a role, alongside diminished demand and elevated interest rates, collectively contributing to the overall decrease in investment volume.

Despite the challenges, the ministry highlighted positive aspects of the economic landscape. Notably, inflation contracted to below 10% in October, and real wages showed growth. However, a significant hurdle to economic growth and investments emerged in the form of escalating positive real interest rates, attributed to a high base rate above inflation. The ministry expressed concern, stating, “This is impeding consumption and investments.”