FRIDAY, 10/12/2021 - Scope Ratings GmbH
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      Scope affirms Hungary's credit rating at BBB+ with a Stable Outlook

      The ratings are supported by robust growth, high investment and increased resilience against external shocks. High public debt, long-term risks to competitiveness and political headwinds with the EU are challenges.

      For the updated report accompanying this review, click here.

      Rating action

      Scope Ratings GmbH (Scope) has today affirmed Hungary’s long-term local- and foreign-currency issuer and senior unsecured debt ratings at BBB+. Scope has also affirmed the short-term issuer ratings at S-2 in local and foreign currency. All Outlooks are Stable.

      Summary and Outlook

      The affirmation of Hungary’s BBB+ rating reflects the country’s: i) robust growth performance supported by strong investment; and ii) increased resilience against external shocks. The rating is constrained by: i) high public debt and growing budgetary pressures; ii) long-term risks to competitiveness; and iii) a polarised political environment and political headwinds with the EU.

      The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

      The rating/Outlook could be downgraded, if individually or collectively: i) protracted fiscal deterioration or a fading commitment to fiscal consolidation would result in weakened debt sustainability; and/or ii) there is a strong decline in foreign investment and/or significant delay in the availability of EU funds, lowering Hungary’s growth potential.

      Conversely, the rating/Outlook could be upgraded if, individually or collectively: i) medium-term growth potential increases, supported by high EU inflows ii) public finances improve, resulting in a significant public debt reduction; and/or iii) external debt is materially reduced, strengthening Hungary’s reserve adequacy.

      Rating rationale

      The first rating driver to affirm Hungary’s BBB+ ratings reflects the economy’s strong record of robust growth and high investment – driven by inflows of foreign direct investment and projects co-financed with EU funds – creating high value-added jobs and supporting growth potential, as well as Scope’s expectation of a robust economic recovery from 2021 onwards.

      Hungary benefits from a competitive economy and has recorded very robust economic growth and greater macroeconomic stability in recent years, with average real growth rates of 4.1% over 2014-19, among the highest in Europe. Growth has been underpinned by improvements in employment rates and solid wage growth and structural improvements in the economic diversification and increasing production capacity. Hungary’s economy has largely maintained price competitiveness relative to euro area economies, with unit labour costs in relative terms increasing moderately by about 10% since 2015. Another critical development contributing to Hungary’s economic strength is rising services exports, reflecting the country’s improving competitiveness in commercial services and the rise of the services sector across economies globally. The growth of the services sector’s output has led to strong employment growth.

      Following a pandemic-related substantial decline in output of 4.7% in 2020, Hungary’s economy has rebounded strongly on the back of ongoing fiscal stimulus via tax relief, increased transfers and social spending programmes, with GDP recovering to the pre-pandemic level in the second quarter of 2021. Partly owing to support measures, the unemployment rate rose only modestly to 4.1 percent, remaining the lowest in the region. Scope forecasts annual GDP to grow by 7.5