Moody’s lifts Hungary’s sovereign rating to positive

Credit rating agency Moody’s Investor Service affirmed Hungary’s Baa3 sovereign ratings and changed the outlook on the ratings from stable to positive in its latest outlook on Friday, news portal Origo reports.

“The key drivers for the change in outlook to positive are the strong recent and prospective performance of the economy relative to Baa3- and Baa2-rated peers, with related improvements to the domestic and external debt position,” Moody’s wrote.

The agency justified the improvement in the Hungarian rating outlook saying that although the coronavirus epidemic is expected to have a significant negative impact on the Hungarian economy, the impact on economic and financial strength is unlikely to be as pronounced as elsewhere in the European Union.

According to Moody’s forecast on Friday, Hungary’s gross domestic product (GDP) will fall by 5.5 percent in real terms this year and grow at a rate of around 4 percent next year.

The company expects that the growth rate of the Hungarian economy in real terms will return to the level of its growth potential from 2022, and the GDP value will increase by around 3.5 percent on an annual average in the period between 2022 and 2024.

Moody’s said that the main factor in improving the positive outlook is that the Hungarian economy has performed strongly in the recent period compared to the “Baa3” and one better “Baa2”-rated economies, and this is expected to continue.

The credit rating agency expects the Hungarian public debt ratio to rise by 10 percentage points to around 76 percent as a result of the coronavirus crisis, however, he said he expected a sustained growth momentum and a commitment to prudent fiscal policy would turn down the current upward path of the government debt ratio again.

Moody’s predicts a slightly more gradual deficit reduction rate than forecast by the Hungarian government, but still expects the general government deficit to fall to 3 percent of GDP by 2024 from 7.3 percent this year.

The current “Baa3” Hungarian sovereign debt rating of Moody’s Investors Service corresponds to “BBB minus” in the methodology of the other two global credit rating agencies, Fitch Ratings and Standard & Poor’s. Last year, both Fitch and S&P upgraded Hungary’s long-term debt rating to “BBB”, so Moody’s maintains Hungary’s rating one notch lower than the other two companies.

If Moody’s positive outlook will lead to a change in rating — as is normally the case — that difference will disappear.