Forint slide will complicate Hungary’s monetary policy

Significance The forint, among the most vulnerable assets in emerging markets (EM), has fallen to its lowest level against the euro since December 2022, fuelled by a sharp sell-off in EM assets due to expectations of trade conflicts and a flight to US assets once US President-elect Donald Trump takes office. Hungary faces constraints due to downward pressures on the forint and insufficient investment stemming from fiscal consolidation and lack of EU funds. Impacts Outflows from EM bond and equity funds reached USD42bn this year, one of the worst years for emerging economies since 2006. Poland’s economy contracted in the third quarter as consumer demand could not offset the impact of stagnation in Germany. Despite the forint’s woes, Budapest’s main equity gauge has risen to an all-time high, partly due to low valuations relative to EM shares.