The latest industrial production data confirm our view that Hungary is heading for a deep recession in 2009, with little relief visible either domestically or from the export sector, and we have subsequently revised our GDP growth forecast down to -3.4%. We anticipate a modest recovery beyond 2011, but caution that over the long term, trend growth will continue to underperform relative to Central European peers.
Hungarian industrial production data for November showed the fourth consecutive month of contraction, with output falling by a whopping 12.2% year-on-year (y-o-y) (10.1% when adjusted for calendar effects). This is yet another leading indicator of the Hungarian economy's rapid deterioration. On the back of this release, and given BMI's downgrade of our 2009 eurozone GDP growth forecast to -1.6%, we have revised down our Hungarian 2009 growth forecast. We now anticipate a deep recession, with GDP growth of -3.4% replacing our previous moderate recession forecast of -0.8%. Moreover, we expect growth to remain weighed down beyond 2009, and forecast GDP growth of only 0.1% in 2010, down from the 2.6% that we previously anticipated.
A key factor negatively impacting the Hungarian economy in 2009 will be the recession in all key external trading partners. Alongside the weak external demand outlook, domestic consumption's contribution to GDP is also likely to be negative in 2009. We have revised down our private consumption growth forecast still further, to -4.0% from -3.0%, and anticipate only a modest recovery to zero growth in 2010. Gross fixed capital formation (GFCF) is the final expenditure component of GDP that is set to suffer over the coming year, and we have revised our 2009 GFCF growth forecast down to -5.0% from zero, with zero growth also likely in 2010.
The practical effect of these sharp across-the-board economic contractions will be to depress GDP per capita below 2008 levels until at least 2011. This will result in significant economic hardship for both Hungarian firms and ordinary citizens, and could in turn lead to an uptick in domestic political and social tensions.
On monetary policy, our core view is for the National Bank of Hungary to continue a trend of incremental easing throughout 2009 as disinflation continues apace and a recession bites harder. We target a policy rate of 7.50% by end-2009, although we caution that a sharp weakening of the forint could yet prevent further rate cuts.
Hungary's current account deficit is set to contract in 2009, as the recession and declining capital inflows cause imports to fall faster than exports. We caution, however, that even with the current account deficit narrowing, the drying-up of FDI and foreign bank lending into the economy will elevate risks to the country's balance of payments stability into 2010.
In Central and Eastern Europe, we profile 22 multi-national insurance companies. In alphabetical order, these are AEGON, AIG, Allianz, Aviva, AXA, Cardif, ERGO, Eureko, Fortis, Generali, GRAWE, Groupama, HDI-Gerling, HSBC Insurance, ING, MetLife, Prudential Financial, QBE, RSA, UNIQA, Vienna Insurance Group and Zurich Financial Services.
We also discuss the regional presence of Belgium's KBC and Austria's Erste Bank through a number of insurance subsidiaries and explain the importance, for each of the various countries, of purely domestic firms.
We estimate that, over the course of 2008, total premiums in Hungary fell by 1% to HUF922,375mn. Non-life premiums rose by 5% to HUF442,676mn, while life premiums fell by 6% to HUF479,699mn.
Between now and the end of the forecast period, we expect that annual non-life premiums will rise by HUF133,360mn, while annual life premiums should rise by HUF163,013n.
Growth in non-life premiums should be driven by the general growth in nominal GDP: we are assuming that non-life penetration remains constant at the current level of around 1.5%.
Growth in life premiums should be driven by the change in the overall population and a rise in life density from US$254 to US$350 per capita.