S&P Affirms Hungary's BBB- Rating, Stable Outlook

Ratings

S&P Global Ratings affirmed Hungary's BBB- sovereign rating with a stable outlook at a scheduled review on Friday, according to news agency MTI.

"The affirmation reflects our assessment that Hungary's fiscal slippage this year will be temporary and that public finances will improve from 2025 without threatening economic stability," S&P said.

 "The stable outlook reflects our expectation that Hungary's economic recovery, ongoing disinflation, and falling interest rates will aid the government's fiscal consolidation efforts in the medium term, allowing the government debt burden to stabilize as a share of GDP," it added.

S&P expects high interest costs, "sluggish" VAT revenue, and off-budget activities to pressure Hungary's fiscal position in 2024; however, from 2025, it projects consolidation efforts will keep fiscal deficits at around 4% or lower, allowing authorities to stabilize state debt in the medium term.

S&P acknowledged the marked reduction in inflation in recent months and noted the current account was in surplus in 2023.

The rating agency expects the budget gap to reach 5.25% of GDP in 2024, over the government's recently revised target. It expects fiscal deficits, relative to GDP, will average 4.2% through 2027, and sees state debt levels rising to 72.5% of GDP by 2027 from 69.3% in 2023.

S&P  sees "no immediate government funding risks" and points to the government's access to a "broad array of tested domestic and foreign financing", including the local banking sector, domestic households, and regular issuance on international capital markets, including Eurobonds and euro-, renminbi-, and yen-denominated green bonds.

The agency puts Hungary's GDP growth at 2.2% in 2024, following a 0.9% contraction in 2023, with the rebound bolstered by a recovery of domestic demand amid falling interest rates and accelerating real wage growth. Weakness in external demand, especially Germany, may weigh, the rating agency said.

Annual GDP growth should average 2.8% in 2025-2027, supported by big investments in EV and battery production, the agency said. A reported EUR 13 bln of such investments were pledged in 2023, including ones by industry leaders BYD and CATL, it noted.

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