Standard and Poor’s upgrades Hungary’s credit rating outlook from 'stable' to 'positive'

Standard and Poor's believes Hungary’s real GDP growth for 2017 “will approach 3.5 percent”

Leading credit agency Standard and Poor’s has revised its outlook on Hungary’s ‘BBB-/A-3’ long and short-term foreign and local currency sovereign credit ratings from 'stable' to ‘positive'.

“The outlook revision reflects our expectation that Hungary’s improving economic and external metrics might support ongoing improvements in the financial sector and thus strengthen the monetary transmission channel,” the agency said.

The credit agency added that it expects loan growth to resume and non-performing loans to stabilize at around 10 percent on the back of a gradual recovery in demand for new loans, the recent recovery in real estate prices and measures by the central bank to stimulate lending as well as prudent regulatory efforts.

According to MTI, the agency acknowledged the impact of a gradual decline in the bank levy on the banking sector’s return to profitability in 2016. 

Standard and Poor's believes Hungary’s real GDP growth for 2017 “will approach 3.5 percent” due to booming consumption triggered by fiscal stimulus and minimum wage hikes; the gradual reduction in the bank levy; substantial recovery in EU fund absorption; real wage and employment gains; rising expenditure on housing subsidies; and stronger private sector balance sheets.

The agency added that “structural growth challenges” will slow annual GDP growth to “just under 2.5 percent” between 2018 and 2020.

The news comes after the Japan Credit Rating Agency (JCRA) upgraded Hungary's credit rating earlier this year, along with three other upgrades in 2016.

Fitch was the first to upgrade Hungary to investment grade in May 2016, followed by S&P in September then Moody's in November.

The JCRA agency announced that they revised Hungary's rating of foreign currency denominated debt from “BBB” to “BBB+”, while forint denominated debt has been increased from “BBB+” to “A”.

"The upgraded ratings are a reflection of last year’s economic performance, the government’s disciplined fiscal policies, the continually falling public debt as well as the six-year program of tax cuts and wage hikes," Mihály Varga, minister for National Economy, said at the time, adding that all this will mean that Hungary’s economic growth will strengthen in 2017 and 2018.