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According to Moody’s assessment, the main reason for improving prospects is past economic performance and future potential, which is above the average for similar countries. They acknowledge that the epidemic has hampered strong economic growth and debt reduction, but
According to them, the impact of the crisis on the Hungarian ranking will be less than elsewhere.
The credit rating anticipates that the favorable fiscal and debt reduction processes will return starting in 2021, thus continuing to reduce our external vulnerability.
In addition to the favorable assessment, challenges are also highlighted: the economy is heavily dependent on the manufacturing industry, Germany and the automotive industry. Furthermore, the above-average debt ratio, weaknesses in the institutional system and ongoing discussions with the EU stand out as negative.
Parallel to the improvement of the outlook for the Hungarian state, the company also improved the MNB’s rating outlook from stable to positive.
As a result of the crisis, according to Moody’s, the Hungarian economy could fall 5.5% this year, followed by a rebound of around 4% in 2021. Our debt-to-GDP ratio could rise to 76% this year from 69% from last year.
By the way, the seemingly surprising decision was mainly justified by the fact that Hungary has produced stronger economic growth in 2018-19 since the last review in November 2018, which is only temporarily hampered by this year’s crisis.
The company’s experts anticipate that Hungarian growth may return to its potential level from 2022, with an average annual growth rate of 3.5% between 2022-24. This can be supported by investments in recent years and new inflows of working capital.
The budget deficit may jump to 7.3% of GDP in 2020 due to the crisis, but the critical deficit of 3% will be available again by 2024 at the latest, after which Hungary will once again have the highest rate within the Baa2-Baa3 countries. debt reduction.
According to Moody’s, another positive decision and improvement could follow if the Hungarian economy were to return to a faster-than-expected growth path after the crisis. In addition, faster debt reduction and structural reforms to improve competitiveness were highlighted as possible positive aspects. The outlook could deteriorate or be lowered if fiscal discipline deteriorates after the crisis and the downward trajectory of debt does not return.
Although Moody’s did not change the sovereign rating with today’s decision, it changed the outlook from surprisingly stable to positive. This suggests that an update may take place within 1 to 2 years, Gábor Regős, an analyst at Századvég Gaqzdaságkutató Zrt., Commented on the decision.
Giving a positive outlook on the economic situation caused by the coronavirus is definitely an unexpected surprise
added.
According to Regős, the positive outlook certainly encourages economic policy in the current situation and indicates that the image of the Hungarian credit rating agency has improved following the results of recent years, which means that despite the virus crisis , it is not degrading.
Cover image: Getty Images
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