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Editorial

Hungary’s Economy: Time to Upgrade the Credit Rating

| October 12, 2015

According to Pasquale Diana, head of CEEMEA Economics at Morgan Stanley, the Hungarian economy looks quite promising. While credit rating agencies have been overly cautious about upgrading the country’s rating, foreign markets already consider Hungary an attractive place for investment. 

“When you look at the market, it is fair to say that Hungary already trades like an Investment Grade (IG) country, sometimes even tighter,” said Diana in this interview with Portfolio. “More specifically, our strategists show that Hungary has historically traded between BBB and BB credits, and since 2015 Hungary has traded tighter than the average of BBB credits, which suggests an upgrade is already ‘in the price’.”

In addition to its strong performance in trade, Hungary exceeded the EU average in recent years in many of the most important economic trend indicators. Eurostat’sstatistics show that in recent years Hungary not only reduced its debt-to-GDP ratio and kept its annual budget deficit under 3 percent but was also able to produce a robust 3.6 percent GDP growth last year. Thanks to these results, the EU removed Hungary from the Excessive Deficit Procedure that it had been under for almost a decade, while at the same time Hungary achieved one of the highest economic growth rates in the EU.

Other indicators paint an even brighter picture. The unemployment rate is down to 6.7 percent, which is not only low compared to the EU average, but it is also a ten-year record low in Hungary. As Diana also points out, Hungary’s strong external surplus (at 9 percent of GDP) and low inflation rate indicate further promise, while the country’s successful policy of converting foreign currency loans into the Hungarian currency provide additional stability.

It’s not just the investors who see potential in Hungary’s economy. The International Monetary Fund just boosted the outlook for the country’s 2015 GDP growth to 3 percent.

In recent weeks, Hungary made headlines in the international press with a courageous mission to find a solution to the migration crisis — but that’s definitely not all that Hungary and its center-right Fidesz government are all about. In the past 5 years, Hungary has undergone a huge economic revival and, sooner or later, credit rating agencies will acknowledge it.