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According to Fitch experts, our current BBB rating reflects the strong structural position of the Hungarian economy, mainly emphasizing the intensive growth of GDP compared to its competitors in recent years. This is somewhat offset by higher public debt than the competition, unorthodox economic policy measures and the deterioration of government indicators. The stable outlook is primarily based on the fact that the economy is expected to return to a growth trajectory after last year’s stagnation and that the debt ratio will also start to decline from 2021 onwards. S&P also points out that as of mid-year the economy may return to its growth trajectory level, the slower rate of vaccination compared to the baseline scenario and the possible stagnation in the use of EU funds are risks.
Fitch experts point out that the epidemic temporarily significantly worsened the Hungarian budget situation, in 2020 the deficit could have been 8.9% of GDP, which is higher than the 5.3% average of countries with similar ratings. According to economists, the fiscal stimulus will continue in 2021, the deficit will fall to 6.4% of GDP and even in 2022 it will be 6.1%. S&P shares this view: Although slowly, the government will seek to return to fiscal discipline, and the debt ratio could stagnate at around 80% of GDP after last year’s jump.
In Standard & Poor’s opinion, there are three downside risks that could cause a downgrade or outlook:
- if budget uncertainty is greater than expected in the next two years,
- if the use of EU funds is delayed,
- if the MNB moves away from the free floating exchange rate system and intervenes more and more seriously in the exchange market.
On the contrary, the following can have a positive effect:
- if Hungary returns to budgetary discipline faster than expected,
- if the use of EU funds improves, which will lead to higher GDP growth.
Fitch believes that a possible negative decline could lead to a sustained increase in debt and a deterioration in the business environment, while if we return to a disciplined fiscal policy and declining debt faster than expected and improve our medium growth prospects term, the outlook will improve. or an update may emerge.
According to Fitch, after the 6.2% drop in GDP last year, the Hungarian economy may grow 4.9%% in 2021, followed by a 5.5% expansion in 2022, mainly due to the use of the Fund. Recovery of the EU and as a result of the new EU budget. They highlight that the Hungarian economy is highly dependent on the automotive industry, which also declined last year, but at the same time
Hungary is in a good position in Europe to be one of the strongholds of electronic cars and battery manufacturing.
According to S&P, the 6.3% drop in GDP in 2020 could be followed by a 4.6% rebound this year, and then growth could slow to 3.5% in 2022. Especially in the latter, there is a difference significant between the ratings of the two credit rating agencies. The budget deficit will drop from 8.7% last year to just 6.9% of GDP this year, and even in 2022 it will be 5.5%, according to the company’s economists, that is.
a disciplined budget with a deficit below 3% will not return for the foreseeable future, which could lead to a stagnation of the debt ratio at around 80% of GDP.
The S&P experts also point out in their analysis that with the return of economic growth from the middle of this year, the relationship between the Hungarian government and the European Union may deteriorate again before the 2022 elections.
Cover image: Getty Images
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