Moody’s issues positive note on Hungary’s credit profile

Hungary’s credit profile is supported by strong economic growth and the government’s policy of reducing the budget deficit and government debt as well as by the significant reduction of external vulnerabilities, Moody’s said in a research announcement. Some local media attributed the positive assessment surprising since Moody’s had abstained from upgrading Hungary’s sovereign rating on the past few occasions. Moody’s still rates Hungary at Baa3/Stable, which is one notch below the ratings of Fitch and S&P.

We believe that Moody’s announcement might have been prompted by the much stronger-than-expected GDP growth print for Q3 although Moody’s projected that growth will slow down considerably to 3.2% in 2020 and in 2021. The growth outlook is hampered by the tight labor market, skill mismatches and lower EU fund inflows, the agency said. It still projected the high nominal economic growth to contribute to further reduction of government debt to around 64% of GDP in 2021. The debt level remains high and is one of the key challenges to the credit rating, Moody’s stressed.

Further debt reduction to bring its level closer to the median for the rating group will be positive for the credit profile, it pointed out. Other potential favorable factors included structural reforms to improve non-cost competitiveness in order to support the long-term economic growth. Conversely, weaker commitment to fiscal discipline and debt reduction would be negative as well as other policies resulting in lower growth outlook, Moody’s said.

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