February 14, 2020 / 8:44 AM / 13 days ago

UPDATE 2-Hungary cuts 2020 GDP forecast to four-year-low of 3.5%

* Hungary no longer immune to slowdown in German car sector

* Coronavirus could hurt tourism sector, global supply chains

* Some companies in Hungary have already flagged problems

* Hungary needs stable and predictable exchange rate -minister (Releads, adds more comments on impact of coronavirus, factors of growth and forint’s exchange rate)

By Gergely Szakacs

BUDAPEST, Feb 14 (Reuters) - Hungary has cut its 2020 economic growth forecast to 3.5% - the slowest pace in four years - as the impact of the coronavirus, Brexit and high levels of global debt have damaged its growth prospects, the finance minister said on Friday.

The government had previously forecast 4% growth this year.

Fuelled by tax cuts, a housing boom, strong bank lending and investments, Hungary’s economic growth peaked at 5.1% in 2018. But it then slowed to 4.9% in 2019 according to data published earlier in the day.

The economy expanded just 4.5% in the fourth quarter of last year as global headwinds to economic growth began to slow the Hungarian economy.

“The world has never been so indebted as today,” Finance Minister Mihaly Varga told a news conference. “What modest growth we have seen so far in the world economy was funded with debt and this is building up risks that we need to reckon with.

“Therefore, we are adjusting out economic growth forecast for this year. We now expect the economy to grow by 3.5% in 2020,” Varga said.

He said the spread of the coronavirus could damage growth through its impact on tourism and global supply chains, with a number of large companies in Hungary, which he did not name, already signalling problems.

“For the time being, stocks are available but unless production capacities (in China) rebound ... this could create problems in the first half of the year,” Varga said.

Varga added that December industrial output data, which showed a 1.2% decline in output due to a fall in car sector production, also showed that Hungary was no longer immune to a slowdown in the German car sector.

However, he expressed hope that new investments, such as a factory being built by BMW in eastern Hungary, could help the economy in Hungary, where production costs were still cheaper than in western Europe.

Varga also said high levels of employment, strong wage growth, investments by large companies and European Union funds would continue to support the economy, which he said would continue to outpace the European average.

He added that January figures, which showed a jump in headline inflation to a multi-year-high of 4.7%, came as a surprise, but said price growth would probably slow in the next two months.

The minister said recent falls in the forint were broadly neutral for the government budget. However, he reiterated his view that Hungary needed a stable and predictable exchange rate. (Reporting by Gergely Szakacs; Editing by Hugh Lawson)

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