Here is the first unpleasant step: S&P downgraded Hungary’s outlook to negative
External risks, such as the risk of losing EU funds and the reduction of Russian gas deliveries, could worsen Hungary’s growth prospects and the risk of budgetary consolidation after the coronavirus epidemic, S&P points out in its justification. They add that wage and price inflation, the volatile forint exchange rate and the expected increase in financing costs will reduce the government’s room for maneuver.
The above risks primarily justify the company’s deterioration of the previously stable Hungarian outlook to negative.
But what exactly does a negative outlook mean in practice? The company’s statement also answers this: there is at least a “one in three chance” of that we will downgrade the country within two yearsif the Hungarian growth or budget picture becomes significantly worse than their current base scenario.
According to S&P experts, the Hungarian economy may slow down from this year’s GDP growth of 5.1% to 2.3% in 2023, and then the rate of growth may only pick up to 3% by 2025. After this year’s GDP ratio of 4.9 percent, the budget deficit may drop below the psychologically important 3 percent value for the first time in 2025. The forecast for next year’s deficit of 3.8% also means that, according to the credit rating agency, the government’s goal of 3.5% will not be met. That is why we are, and the reduction of the national debt may be very slow in the coming years, even at the end of 2025 the debt may be 67.5% of the gross national product.
Among the more important external indicators, the current account deficit may be 8.4% of GDP this year, and then this may decrease to 4.7% next year, according to the forecast. Analysts are not too optimistic about the inflation path either, in 2022 the rate of price increase may be 11.5%, and then this may decrease to only 7.5% next year as well.
They also cover what we pay particular attention to in relation to S&P Hungary in the next period. There is a risk of downgrading if
- The agreement on new resources will be significantly delayed or Hungary will lose resources.
- The country’s energy supply shows significant uncertainty due to high dependence on Russian imports.
- Monetary policy challenges are being monitored separately, Hungary, like other emerging countries, may find itself in a difficult situation due to rising interest rates, continuous wage pressure, and the fluctuating forint exchange rate, which may reduce the government’s budgetary room for maneuver.
More details coming soon.
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