Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings' performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Hungary (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BBB/Stable Outlook; short-term local- and foreign-currency issuer ratings: S-2/Stable Outlook) on 3 June 2024.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, click here.

Hungary's credit ratings of BBB are supported by: i) a strong track record of robust growth, bolstered by substantial foreign investments and significant EU funding, fostering high-value job creation and enhancing Hungary's competitiveness; and ii) the robust structure of its external and public liabilities and an improved external position, enhancing the country's resilience to external shocks.

Hungary's credit ratings face constraints due to: i) an elevated public debt burden with heightened borrowing costs; and ii) weak governance metrics, limited policy predictability and lingering uncertainty regarding the inflow of substantial EU funds.

Despite Hungary's vulnerability linked to energy-intensive businesses and expectations of subdued economic activity among key external trading partners in 2024, major capacity-expanding foreign direct investment projects are projected to sustain Hungary's growth. Scope expects real output will recover robustly, with forecasted real growth rates of 2.4% this year and 3.3% in 2025.

After the debt-to-GDP ratio decreased to 73.4% in the previous year, Scope projects a very modest decline over the forecast period to 69.5% in 2029. The declining trajectory is primarily driven by a strong nominal growth outlook and gradual improvement in the primary balance, which is partially offset by rising interest payments. A growing interest-payment burden due to higher domestic interest rates is exerting pressure on the budget deficit, which Scope forecasts to average 3.6% of GDP over 2024-29.

The Stable Outlook reflects Scope's opinion that risks to the ratings are balanced.

The rating/Outlook could be downgraded if, individually or collectively: i) Hungary's GDP growth prospects and/or external metrics worsened materially, for example, due to significant cuts or delays in the disbursement of EU funds and/or notably constrained energy supplies or supply chain disruptions; ii) the fiscal outlook deteriorated, for example, due to elevated fiscal deficits; and/or iii) governance and/or political risks increased, affecting the quality and predictability of policymaking.

Conversely, the rating/Outlook could be upgraded if, individually or collectively: i) medium-term growth prospects improved, supported by strengthened external metrics; ii) public finances improved, resulting in a significant reduction in public debt over the medium term; and/or iii) governance and/or political risks eased, improving the quality and predictability of policymaking.

The methodology applicable for the reviewed ratings and rating Outlooks (Sovereign Rating Methodology, 29 January 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Jakob Suwalski, Senior Director

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