Analysts Predict Grim Future for Hungarian Forint: Will It Stay Above 400?
Analysts Predict Further Weakening of Hungarian Forint in Coming Years
According to analysts, the euro exchange rate is not expected to drop below 400 forints in the long term, with projections indicating it could reach around 415-420 forints by the end of 2025.
The weak forint has had a significant impact on consumer confidence, exacerbated by high inflation and expensive food prices. While inflation is projected to ease to 3.8% in 2024, households will continue to experience declining purchasing power. This trend is a result of the consistent weakening of the forint in recent years, primarily due to high inflation, low consumer confidence, and uncertainties in the external economic and political landscape. The depreciation of the forint is also leading to further hikes in the prices of imported goods, putting sustained pressure on household budgets.
Inflation, which exceeded 20% in 2023, is expected to drop to 3.8% in 2024, but price levels will remain high. The forint’s weakening will drive up the costs of imported goods, including energy and food, potentially generating additional inflationary pressures that hamper purchasing power recovery and undermine the forint’s stability.
The decline in yields of Premium Hungarian Government Securities could indirectly impact the forint as retail investors may redirect investments to other assets like foreign currency government bonds or foreign investments, reducing demand for the forint and contributing to its depreciation. The Hungarian government’s debt management agency may aim to introduce more attractive interest rates, but competition from higher yields on government bonds in the market could remain strong.
The connection of the forint to the equity market and the global economic situation is significant. While undervaluation of the Hungarian equity market offers new investment opportunities, a shift to equities does not necessarily strengthen the forint as it relies mainly on domestic investment, with foreign capital inflows remaining uncertain. The vulnerability of OTP, Mol, and Richter shares, especially due to exposure to the Russian market, underscores the impact of international economic influences.
Global economic trends, such as policies in a potential second term of Donald Trump’s presidency, could indirectly affect the forint exchange rate. Trade tensions between the US and China, as well as protectionist US economic policies, may pressure emerging markets like Hungary. Challenges in the European automotive industry could also impact Hungarian export performance, further destabilizing the Hungarian forint.
Looking ahead, the outlook for the Hungarian forint appears weakened by domestic economic issues, global challenges, and household investment decisions. Continued currency depreciation and inflationary pressures will pose difficulties for achieving economic stability, requiring coordinated efforts in fiscal and economic policies to mitigate risks and improve the forint’s position.
In essence, addressing internal and external risks through aligned policy measures will be crucial in enhancing the Hungarian forint’s standing in the face of prevailing economic pressures.
Sources:
– Economx
– Featured image: depositphotos.com
