S&P Global upgrades Hungary credit rating

S&P Global raised its rating for Hungary from BBB/A3 to BBB/A2. It justified the move on the basis of gains in real wages for Hungarians and their high private savings rate, along with growing consumer demand. The rating agency predicts Hungary’s rating will rise over the next 24 months on the back of balanced economic growth, but warns that any deterioration in the country’s external financing situation or shocks to the economy could bring about a reversal. S&P also warned that Hungary’s fraught relationship with the Europe Union over recent legislation in the country could instigate a return to lower ratings.

“We think that some unconventional policies employed under the government of Prime Minister Viktor Orban, aided by a favorable external environment, have helped reduce the open economy's external vulnerabilities,” wrote S&P Global in its commentary on the decision. “While we expect growth to slow toward 2 percent by 2021, we think Hungary's small open economy will be able to weather a period of weaker external demand, as well as the expected decline in EU funding. The Hungarian forint floats, and there is no longer any significant foreign currency funding to the private sector without a natural hedge.”