Budapest, November 21 (MTI) – Fitch Ratings late on Friday affirmed Hungary’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at ‘BBB-‘ with a Stable Outlook.
Hungary’s ratings reflect the country’s membership in the European Union, strong governance indicators, high GDP per capita and reduced external debt, Fitch said. The ratings are constrained by high public debt, a weak banking sector and a track record of unorthodox economic policy that “has contributed to low private investment and affected growth potential”, it added.
Fitch projected Hungary’s economic growth will remain “subdued” relative to its peers, but forecast GDP growth will accelerate from 2.1 percent in 2016 to 2.6 percent in 2017 and 2018 as the new EU funding cycle ramps up and domestic demand benefits from improvements on the labour market as well as accommodative monetary and fiscal policies.
Fitch said a continued reduction in external indebtedness, a sustained decline in public debt as a percentage of GDP and stronger GDP growth potential supported by an improved business environment could trigger a positive rating action. A renewed increase in the public debt-to-GDP ratio and a deterioration in the economic policy framework could lead to a negative rating action, it added.
Fitch assumes that the foreign parents of Hungarian banks would support their local units if they come under severe financial stress. It expects Hungary’s relations with the EU to “remain on track despite occasional tensions”.
Fitch bumped Hungary back into investment grade in May. Standard and Poor’s and Moody’s followed suit in September and November, respectively.