Nomura: Fitch upgrade of Hungary a ‘distraction’


The upgrade of Hungary by Fitch late Friday is a “distraction from the underlying narrative of a much weaker underlying economy with very low potential growth and a policy designed to prop up current growth in the interim”, analysts of Japanese Nomura said in a report issued yesterday.

According to the Japanese analysts, the “surprise” upgrade by Fitch is a reflection of “concentrating more on reducing external vulnerability and less on fiscal growth and institutional risk as the other agencies are. As such, we think the two main ratings agencies will still not move higher this year”, according to the report. 

Nomura analysts see a broader narrative starting to develop in Hungary “with uncertainty though potentially important implications for markets”. Nomura stressed that “Hungary and Poland are increasingly developing an anti-EU alliance over fiscal and rule of law/constitutionality issues”. According to the report “this risks headline crossfire for markets and concerns over EDP-related sanctions for both on the fiscal front and the EU rule of law issues for Poland. Hungary could veto the latter, but neither can likely block fiscal sanctions, yet the timeline is lengthy and should not be of immediate concern to markets.”

According to Nomura, the two countries have been “increasingly under attack from ‘left-wing’ foreign influences that are jeopardizing their sovereignty”. The report also mentioned former U.S. President Bill Clinton’s recent criticism of the countries.

The analysts believe that such issues have shown to affect credit-worthiness and ratings in the case of Poland, but not so much Hungary in the case of the recent Fitch rating, however, this could affect the upcoming ratings of S&P and Moody’s.


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