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Research Announcement:

Moody's - Hungary's credit profile supported by diversified economy and commitment to fiscal consolidation

22 June 2020


Frankfurt am Main, June 22, 2020 --

  • Sizeable fiscal stimulus package will temporarily reverse fiscal improvements of recent years
  • Economic impact of the coronavirus outbreak concentrated in first half of 2020

Hungary's (Baa3 stable) credit profile is supported by a diversified economy that is closely integrated into European supply chains, fiscal policies that have kept the budget deficit below the Maastricht threshold in recent years and its commitment to gradual fiscal consolidation and debt reduction, Moody's Investors Service said in an annual report today.

While the coronavirus outbreak will cause the economy to contract by 4.8% in 2020, Moody's expects that it will start to recover from the second half of the year, supporting real GDP growth of 4.0% in 2021.

"The coronavirus outbreak will cause Hungary's economy to contract in 2020 and lead to a temporary increase in the debt burden to 73.6% of GDP this year," said Steffen Dyck, a Moody's Vice President - Senior Credit Officer and the report's author. "The significant and sustainable reduction in Hungary's external vulnerabilities has increased the sovereign's ability to withstand external shocks."

The country's sizeable public debt - which stood at 66.3% of GDP at the end of 2019 - remains a key credit challenge. Hungary also has relatively large annual gross borrowing requirements given the short average maturity of government debt of less than four years.

Upward pressure on the rating could develop if Hungary's economic and fiscal metrics – after the coronavirus pandemic – were to improve again quickly, resulting in a significant reduction of the public debt burden closer to the median of similarly rated peers. Structural reforms aimed at improving non-cost competitiveness, which help to boost potential growth in the economy, would also be positive.

Post-pandemic signs of a weakened commitment by policymakers to contain the budget deficit or achieve primary surpluses to ensure a continued reduction in the debt burden would be negative. In addition, the introduction of policy measures that would weaken the economic growth outlook, which in turn endangers the downward trajectory of the government's debt ratio, would also be negative.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at [email protected] or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Steffen Dyck
VP-Sr Credit Officer
Sovereign Risk Group
Moody's Deutschland GmbH
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Yves Lemay
MD-Sovereign Risk
Sovereign Risk Group
Moody's Investors Service Ltd.
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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