Sitting on a see-saw: Hungary’s credit rating outlook went up and down at the same time
Turning to the last month of 2024, Moody’s and Fitch Ratings changed their outlook on exactly the same sovereign debt rating in the opposite direction within just a few days’ time. In our report, we go over the background and the details of these half-empty, half-full kind of decisions.
The US government’s new sanctions against Gazprombank and others will make it more complicated and expensive for Europe to buy natural gas from Russia. However, they are unlikely to reach their main stated aim of stopping such purchases altogether, as the current supply situation just does not allow that luxury for European buyers. It is interesting that these sanctions came shortly before the EU and the US would start talks on more US exports of LNG to Europe.
The last few weeks did not bring about any crucial developments in foreign policy. There has been no progress on access to EU funds, and so at the end of this year, funds from the RRF and some more from other structural funds will most likely be definitively lost for Hungary. The government’s six-month rotating presidency is approaching its end, with some positive results at the technical level and the lack of new major scandals at the political level.
The opposition Tisza Party continues to make gains in opinion polls, having taken over the lead from Fidesz in a few recent surveys. The party is currently selecting its candidates for the 2026 parliamentary election through an open application process, a rarely seen method anywhere around the globe. Fidesz’s propaganda campaign to discredit Tisza’s leader has brought no evident success so far.
Following Q3’s poor GDP data, which we review once more in detail in this report, significantly better industry, retail sales and construction output numbers were reported for October. Economy Minister Nagy, who is set to become finance minister, as well, from January, has come forward with measures to support growth in 2025-2026, focusing mainly on housing construction and the development of SMEs.
The cash budget figures for November were so good that the government could even undershoot its annual deficit target for the general government. However, the target's being largely met is a much more likely outcome, as the government remains interested in bringing forward as much net spending from 2025 as possible. New growth-supporting measures are unlikely to shake the 2025 budget, as the program is not very big, and it mainly aims at supplementing private sector money by adding a smaller amount of government funds.
The balance-of-payments picture improved just a bit further in October, with both net external financing and the basic balance moving slightly in a positive direction on a ten-month cumulative basis.
The headline rate of CPI-inflation rose as expected in November, whereas core inflation turned out to be significantly lower than the MNB’s late-September forecast. Problems are the weak forint and a recent sharp upturn of agricultural producer prices. On the positive side, nominal wage growth continues to decelerate, and the government’s income policies for 2025 appear to be less inflationary than this year.
At the last rate-setting meeting this year, the Monetary Council left the MNB base rate unchanged at 6.5%, stressing that it might remain there even "for a longer while" if the inflation environment and external risk factors require. The MNB raised its inflation forecast for 2025, and the Council concluded that the headline rate could return to the 3% target level on a sustainable basis only in 2026.
Parallel to the announcement that the Finance Ministry will be merged into the Economy Ministry on January 1, Finance Minister Mihály Varga, who is now officially nominated as a candidate for MNB governor, appeared at the National Assembly’s economic committee. On this occasion, Mr. Varga said pretty much everything an upcoming new governor is supposed to say, stressing his commitment to monetary and financial sector stability, the MNB’s existing inflation target and to the strong forint. He also introduced three colleagues who are going to follow him to the MNB: his current state secretary for budget affairs, the head of ÁKK, and the head of MFB, the government’s development finance institution. These gentlemen are mostly likely the ones to replace the three Monetary Council members whose terms are set to expire at various times in 2025.
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