Moody's "reassessed the appropriateness of the ratings" in the context of the relevant methodologies and recent developments, the rating agency said, while noting that the announcement of the periodic review was not a credit rating action or an indication of whether or not a credit rating action was likely in the near future.

"Hungary's ratings, including its Baa2 long-term issuer ratings, are supported by a diversified economy with robust growth outlook, and the authorities' commitment to gradual fiscal consolidation which should help to reduce the comparatively high government debt burden over the coming five years," Moody's said, summarising key rating considerations and rationale.

"Credit challenges arise from the contentious relationship with the European Union, delayed and partly suspended EU funds, an institutional framework with features that could erode policy credibility and pose structural challenges to the longer-term growth outlook, as well as deteriorating debt affordability," it added.

Moody's said Hungary's susceptibility to geopolitical event risk had increased because of Russia's invasion of Ukraine, but acknowledged that risks stemming from Hungary's exposure to Russian energy imports had diminished compared to 2022-2023.

Credit trends since the last rating action in September 2023, when Moody's affirmed Hungary's Baa2 ratings and maintained the stable outlook, "have been overall consistent with Moody's expectations", the rating agency said.

"The robust economic growth outlook is underpinned by the realization of large foreign direct investments (FDI) in the electric vehicle and battery production industry, which support the domestic economy and contribute to enhanced export capacities. In addition, the further gradual recovery of private consumption will also add to overall growth," it added.

Developments with respect to EU funds since the last rating action were "overall in line with Moody's expectations", it said, noting that the European Commission had unlocked EUR 10.2 bln in cohesion funds in December 2023 and a further EUR 2 bln in February 2024, after Hungary implemented reforms.

The decline in Hungary's state debt ratio to 73.5% of GDP in 2023 was "less significant compared to Moody's expectation at the time of the last rating action", the rating agency said.

Moody's said that upside and downside risks to Hungary's credit profile were balanced at the Baa2 level, reflected in the stable outlook. 

Upward pressure on Hungary's rating could arise from a "material improvement" in the relationship with the EU, a sustained increase of Hungary's trend growth and a "more material" fiscal consolidation, Moody's said.