Hungary has been an impressive economic success since it joined the EU in 2004. But the 15-year marriage now seems in trouble after the EU initiated an Article 7 procedure against the country, citing Hungary’s – or really PM Orbán’s — ever-tighter restrictions on free media, judges, academics, minorities and rights groups, which in the opinion of the EU does not conform with the rule of law, weakens democracy and does not conform with EU values. A divorce is increasingly likely and we could see Hungary take steps to follow the UK out of the EU by end of 2020.
There is endless irony here: a major portion of Hungary’s economic success since 2004 comes from EU capital transfers. One estimate from KPMG estimates that EU membership’s net effect on Hungarian growth was at some +3.0% of GDP per year, but despite this high correlation the government in Budapest is seeking confrontation with Brussels whenever possible.
The pushback from Hungary’s leadership is that the country is only protecting itself: mainly protecting its culture from mass immigration. Plus, they maintain that it has a right to decide for itself. But an open economy with insular governance, immigration and press rules? It’s an unsustainable status quo, and the two sides will find it tough to reconcile in 2020 as the Article 7 procedure moves slowly through the EU system.
PM Orbán is even openly talking about how Hungary is a ‘blood brother’ with the renegade Turkey as opposed to a part of the rest of Europe, a big shift in rhetoric that has not gone unnoticed in Hungary — as well as among bureaucrats and politicians in Brussels.
That this change of tone coincides with EU transfers all but disappearing over the next two years is hardly surprising. But it will leave Hungary’s currency, the forint (HUF) on the back foot and take it to a new, much weaker level of 375 in EURHUF terms as the markets fear the disengagement or reversal of capital flows as EU companies reconsidertheir investment in Hungary.
Q4 Outlook 2022: Winter is coming
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European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.