Fitch Ratings has left Hungary's BB+ long-term sovereign debt rating unchanged on Friday, which means that the country's rating could return to investment-grade category only in 2016. Earlier in the day Minister for National Economy Mihály Varga said he did not expect an upgrade on Friday. Analysts were split on the issue.
Earlier, most analysts expected an upgrade of the headline rating to "BBB minus", the bottom of investment grade, but Hungaryʼs National Economy Minister Mihaly Varga played down the chance for "a major change" in a Friday morning television interview.
Hungaryʼs rating and outlook reflect its strong economic growth performance in 2014-2015 and high current account surpluses since 2011, which have supported external debt reduction. The gradual tightening in the budget deficit will also help reduce the general government debt ratio, which is high relative to ratings peers. The expected improvement in the bank operating environment should help revive bank lending. Hungaryʼs GDP per capita and governance indicators are high relative to rating peers," Fitch said on Friday.
Fitch expects GDP will grow 2.9% in 2015 after 3.7% in 2014, driven by an acceleration of European Union funds' disbursements. Households' consumption is supported by high job creation (the unemployment rate was 6.4% in September from above 10% in 2010-2012), low inflation and relief to household finances following the foreign currency mortgage conversion in early 2015. Fitch forecasts growth to slow from 2016 to 2.3%, as EU disbursement falls markedly, and to remain at about 2.0% in the medium term as private sector investment gradually recovers. Fitch expects the government deficit will be 2.3% of GDP in 2015 from 2.5% in 2014, supported by higher tax revenues linked to fast GDP growth.
Hungary was knocked down from investment grade in 2011 and early 2012 by Fitch, Moody's and S&P. All three agencies are expected to release their 2016 schedules in December, revealing when Hungary could get the next chance for an upgrade.
