S&P has taken back the positive outlook from its BBB sovereign rating for Hungary

HUNGARY - In Brief 02 May 2020 by Istvan Racz

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Well, it did not take a very long time. S&P announced the positive outlook on February 14 this year, signalling that it would soon consider an upgrade for the Hungarian sovereign's BBB rating. But then came Covid-19, and in an extraordinary statement released on April 28, the outlook was announced to have gone back from positive to stable, meaning that the potential upgrade is now off the agenda for the foreseeable future. The next pre-announced review date for this rating would have been August 14 only.By the way, S&P's current forecast for Hungary is not particularly unfriendly. For 2020, they expect GDP to fall by 4%, unemployment to rise to 7% by year end, the fiscal deficit to reach 5% of GDP, and consequently the government debt ratio around 70% in December. This seems to be at the optimistic end of the existing spectrum of forecasts, which is just fine for a rating agency. One interesting point is S&P's evaluation of the recent Authorisation Act, i.e. the peace of law that authorised PM Orbán to run the country through decrees under an emergency order for an unlimited period. The agency said this piece of legislation has raised political risk, because it will likely lead to the deterioration of relations with the EU, and although immediate sanctions are unlikely, but Hungary will most probably get less money than otherwise from the next medium-term EU budget. This exactly matches our assessment on the subject.Following S&P's decision, Hungary still remains with a split rating from major rating agencies: it has BBB/Stable from both Fitch and S&P and a Baa3/Stable from Moody's. The next pre-announced review date is August 14, when in addition to S&P, Fitch will al...