2023 Deficit Revision Makes 2024 Target 'Challenging' - Fitch

Ratings

Hungary's decision to raise its 2023 general government deficit target to 5.2% of GDP from 3.9% makes reaching next year's 2.9% target "more challenging", Fitch Ratings said on Friday, according to a report by state news wire MTI.

Fitch forecast the 2024 deficit would reach 3.7% of GDP in 2024 and 2.8% in 2025.

Hungary's state debt relative to GDP should continue to decline gradually in 2023-2025 on the back of "solid" GDP growth and the return of primary surpluses, but the ratio will remain above the 'BBB' category median, Fitch said.

Fitch acknowledged press reports suggesting the European Commission could unlock up to EUR 13.3 bln of Hungary's suspended cohesion funds by the end of 2023 and said the disbursement of the EU funds would "take some pressure off" public finances and be growth-positive.

"While an agreement with the EC is our baseline expectation, we remain cautious regarding the timing and size of eventual disbursements," the rating agency added.

Fitch noted that Hungary's GDP contracted by 1.7% year-on-year in the first half, as household consumption was hit by high, albeit easing, inflation, while high borrowing costs and cuts in state spending weighed on investment activity.

As high-frequency indicators suggest continued weakness in household spending in Q3, Fitch lowered its full-year GDP forecast to -0.9% from 0%. It sees growth recovering and averaging 3% in 2024-2025, but pointed to downside risks linked to further delays of EU funding and spillover from potential fiscal consolidation efforts.

Fitch rates Hungary 'BBB', two notches over the investment grade threshold, with a negative outlook.

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