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Moody’s: Structural factors limit Hungary's economic growth, external vulnerability decreases

MNB

Hungary’s economic growth in 2014 was stronger than anticipated, due to stronger public sector investment and improved absorption of EU funding, in addition to its central bank funding scheme, but this is unlikely to be replicated in the coming years, according to a report from Moody's.

A weak banking systems resulted in a limited ability to support credit growth, but at the same time Hungary’s non-performing loans could improve following a recent policy pertaining to the banking sector, and Hungary's flexible exchange rate support of its exporters' price competitiveness, the report said.

As far as Hungary’s sovereign debt is concerned, the burden of the debt will slowly decline to 76%, but the country’s high level of foreign-currency-denominated debt will expose the country to potential shocks stemming from a shift in investor confidence, the report said. Rigidities in the labor market and weaknesses in the business environment are key factors in Hungary’s structural problems, the report concluded.

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