About Standard&Poors Hungary’s credit rating
On October 25, 2024, S&P Global Ratings affirmed Hungary’s ‘BBB-/A-3’ credit rating with a stable outlook.
Lower investment appetite and weaker external demand pose risks to Hungary’s economic growth prospects this year.
While the government will begin fiscal consolidation from 2025 amid recovering demand and lower borrowing costs, the upcoming 2026 elections may make it difficult for the government to reduce the large budget deficit.
On a positive note, inflation has declined and the current account shows a moderate surplus. However, the Magyar Nemzeti Bank (MNB, the central bank) is expected to be sensitive to exchange rate developments and proceed cautiously with monetary easing in the remainder of 2024 and 2025.
The rating could be lowered if Hungary’s fiscal performance is significantly weaker than forecast or if external pressures re-emerge, for example due to an energy supply shock, which would affect the forint exchange rate and inflation.
The rating could be raised if Hungary’s fiscal position improves significantly, in parallel with a reduction in its external vulnerability.
The rating agency expects Hungary’s budget deficit to narrow from 2025 and average 3.7% until 2027, taking into account improving economic prospects and this year’s active consolidation measures, which total about 1.3% of GDP.
Compared to other countries in the region, Hungary has one of the highest debt-to-GDP ratios, which is forecast to reach 74.6% of GDP in 2024. Interest expenditure will average 9% of government revenue in 2025-2027.
Inflation is expected to decline further and the current account will remain in moderate surplus, allowing for a cautious normalization of monetary policy by the MNB.
Hungarian real GDP growth is projected at 1.6% in 2024, accelerating to around 3.0% in 2025 as investment growth and external demand pick up, alongside sustained private consumption.
Strengthening consumer confidence and high accumulated savings of Hungarian households also boost growth momentum in 2025, along with the ongoing monetary easing cycle.
However, the growth outlook remains somewhat uncertain given that Hungary’s open and trade-intensive economy remains sensitive to external developments, including the growth performance of Germany, Hungary’s key trading partner.
The share of foreign direct investment in total investment has declined somewhat since 2022, but is expected to rise again in light of significant investments in the electric vehicle (EV) sector and related battery manufacturing facilities.
Following the release of cohesion fund framework amounts in December 2023
In mid-December 2023, the European Commission released €10.2 billion (about 5.3% of 2023 GDP) from cohesion funds. A further €2.3 billion was released in February 2024. The inflow of EU funds will contribute to Hungary’s capital account reaching an average of 1.5% of GDP per year in 2024-2026, compared to 0.9% in 2023, supporting short-term growth assumptions.
Annual GDP growth is adjusted to recently raised growth targets. In October 2024, the government announced the outlines of an economic action plan aimed at raising annual growth to between 3% and 6%.
Hungary’s open economy continues to face a difficult external and domestic environment in the period to 2026.
The current risk rating gives a better rating than Fitch Ratings, which assigned a BBB rating, which means investment grade, but with a negative outlook.
Moody’s Investors Service in its January 2024 release affirmed Hungary’s Baa rating with a stable outlook, but indicated that this was not a credit rating.