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Forget the Rhetoric, Look at the Figures

If Hungary’s government was hoping for an early Mikulás present from ratings agency Moody’s Investors Service, it was disappoined.  

At its latest review on November 23, Moody’s decided to leave things exactly as they stood, at a rating of Baa3 and with a “stable” outlook. The government has, at the time of writing, kept remarkably quiet about the matter, but many of the pro-Fidesz media outlets were quick enough to profess their outrage, openly questioning the suitability of Moody’s analysts to do their jobs.

They way some of the government cheerleaders went on, you might think the Grinch had just stolen Christmas, or that the good folk at Moody’s had more in common with Scrooge (pre-Ghosts of Christmas, naturally) or, indeed, Mikulás’ dodgy companion Krampusz himself, rather than professional risk analysts.

Others were more measured. Gergely Suppan is the chief analyst at TakarékBank, an institution that is often described as the central bank for the local cooperatives, is generally bullish about the economy (almost always at the more optimistic end of the spectrum) and perceived as having good connections with the government.

Speaking to state wire service MTI, Suppan went as far as to describe the rating non-action as “entirely unjustified”. Raiffeisen Bank senior analyst Zoltán Török did not expect a further upgrade, but had thought the agency might shift its rating outlook from “stable” to “positive”. That would have brought Moody’s fully into line with the other two big rating agencies, Standard & Poor’s and Fitch, both of which also have the country at the lowest level of investment grade.

But while some of the comments may have been over the top, they have a kernel of truth at their heart. The day after the ratings news broke, I spoke with a very senior, non-Hungarian, European-level banker. Was he surprised, I asked? Noting that “surprise is a strong word” he thought the issue was more one of “timing”. “The country deserves an upgrade,” he said.

Park to one side the politics in Hungary, and whatever your view on that might be, and the fundamentals of the economy are good. And while just about everyone expects growth next year to be down on this, the forecasts for that growth continue to rise. Just this week, London-based analysts for Morgan Stanley said Q3 growth in Hungary had prompted them to update their predictions to 4.6% for this year, 3.8% for 2019 and 3.2%, as a “first stab” for 2020. The country, the analysts said, is comfortably outperforming the euro area and is broadly in line with its regional peers. The European Commission and the OECD have both raised their growth projections for Hungary in recent weeks.

Generally speaking, most interested parties believe Hungary is committed to reducing debt, though there continue to be technical arguments over the details of how that is achieved. While the central bank has raised eyebrows with some of its unconventional policies, Hungary’s economy is undoubtedly in a better place. Then again, as one diplomat put it to me a couple of weeks ago, if you can’t produce good figures in the current climate, you never will. Perhaps the biggest worry about mid-term growth is what happens with EU funding post 2020. But as the EU has yet to reach a conclusion on that itself, it is for now an imponderable.

Hungary will just have to hope for a New Year ratings present instead.

Robin Marshall

Editor-in-chief