HUF remains top performer in EM currencies, however many risk factors

The forint has been one of the top performers among EM currencies since the beginning of last week, with EUR-HUF dropping from near 318.00 at its peak last week to 309.40 now. This was mostly driven by relief on the Grexit front. 

But, risks surrounding Greece have not disappeared, and local risk factors have multiplied as the European Commission (EC) has launched a number of infringement cases and fund suspensions, further to the suspension of EUR 700mn in April because of disagreement on tendering process, the EC has now also suspended EUR 573mn allocated to road construction projects also on similar grounds. 

This "asphalt dispute" is not entirely new, and the EC had already imposed a HUF 90bn sanction on the Hungarian government for it, which was partly implemented in November 2014. In response, the Hungarian government wants to go to the EU Court. 

The problem is that the process of litigation would leave little time for any alternate use of the same funds as the deadline for use of these funds is December 2015. 

"In short, a significant shortfall in EU funds has emerged as a risk factor for investment and GDP growth during H2 2015, with potential to hit GDP growth by 0.2pp for full-year 2015. EUR-HUF can be at 315.00 by yearend", says Commerzbank.