Standard & Poor’s Global Ratings revised Hungary’s economic outlook from stable to negative

By rbj
With all the praise that the press from the country and from “friendly” countries brings to the economic policy of the Viktor Orban government, the economic state of the country is not rosy.
This was found by analysts from the S&P rating agency.
S&P Global Ratings said it was lowering its outlook on Hungary to negative from stable, citing external pressures which could “significantly weaken Hungary’s economic and fiscal outcomes.”
S&P also said it was affirming its ‘BBB/A-2’ sovereign credit ratings on Hungary.
The country’s credit grade was maintained at BBB, the second-lowest investment grade, S&P said in a statement. That matches the level at Moody’s Investors Service and Fitch Ratings.
Among the external risks cited by S&P was energy supply, especially from Russian sources. According to the agency, “Hungary is currently seeing the largest negative effects from higher prices due to the energy crisis in Europe.” S&P also said Hungary’s energy import dependence is particularly high, “with the country sourcing roughly half of its oil imports and over 80% of its natural gas imports from Russia.”
S&P recognized that the government has “substantially decreased” fiscal deficits in recent months and put the full-year gap at around 5% of GDP for 2022, while projecting a reduction to 3.5-4% in 2023. However, Hungary’s state debt relative to GDP will remain one of the highest among its CEE peers at about 68% in 2022, it added.
Bloomberg shows that Russia’s invasion of Ukraine fanned investor concern about Hungary, which is highly dependent on Moscow for its energy supplies. A temporary halt in Russian oil flows to central Europe this week triggered a drop in the currency, which has been the third-worst performing in emerging markets since the outbreak of the war.
Adding to challenges are fiscal concerns after pre-election spending had already run up twin deficits, while relatively high government debt is paired with modest foreign currency reserves.
The forint has dropped more than 8% against the euro since Russia’s war in Ukraine started in February, with the turmoil prompting the central bank to raise its key interest rate to the highest level in the EU.
S&P also noted a rise in political tensions between Hungary and the European Commission, which has delayed the disbursement of EU funds from the Recovery and Resilience Facility “and the triggering of the Rule of Law Conditionality Mechanism by the EC.”
S&P said it could revise the outlook back to stable “if external pressures remain manageable.” Hungary’s ratings could be lowered if “significant delays or substantial cuts to EU funds occur or the supply of energy to the country is meaningfully constrained,” S&P said.