BUDAPEST, Feb. 23 (Xinhua) -- The Hungarian National Bank (MNB) welcomed the latest upgrade of Hungary to BBB by international rating agency Fitch Ratings, in a statement published here on its website very late Friday night.
"MNB welcomes the latest upgrade of Fitch Ratings. The Hungarian National Bank, in line with its legal mandate, continues to endeavor towards the success of the national economy and ensuring stability with all of the tools at its disposal, and it trusts that the third big rating agency, Moody's, will acknowledge the sustainable improvement in the fundamentals of the Hungarian economy in the course of a decision coming in May," the central bank said.
Moody's is scheduled to review Hungary's sovereign rating on May 3, 2019.
On Feb. 16, Standard and Poor's upgraded Hungary's sovereign rating to 'BBB' from 'BBB-'. Moody's still puts Hungary just one notch over the investment grade threshold, and its outlook on the 'Baa3' rating is 'stable'.
"Fitch Ratings has upgraded Hungary's Long-Term Foreign- and Local-Currency Issuer Default Ratings to 'BBB' from 'BBB-'", the agency declared earlier.
"Hungary has undergone rapid external deleveraging. Net external debt, as calculated by Fitch, has fallen from an average of 34.4 percent of GDP in 2013-17 to an estimated 10.2 percent in 2018, compared with a current peer median of 7.8 percent," Fitch added in its justification.
"The fall in net external debt has been due to consistent (albeit declining) current account surpluses, stable net FDI inflows, and capital transfers from the EU," according to the rating agency.
Fitch underlined, "Real GDP growth reached 4.8 percent in 2018 (preliminary estimate) (2017: 4.1 percent), which likely represents a cyclical peak, well above the current peer median of 3.5 percent. Investment and household consumption will remain robust contributors to growth over the forecast horizon. The latter received a strong boost from double-digit growth in wages and minimum wages in 2018."
Fitch expects the contribution of net exports to GDP growth to remain subdued in 2019-20, given the decline in growth prospects we expect in the eurozone (the main destination for Hungarian exports) and Germany in particular (the recipient of about 25 percent of Hungarian exports). Risks to growth are predominantly on the downside. Hungary is an open economy and vulnerable to a sharp slowdown in external demand, particularly in Germany and other key EU export markets.
On the downside, concerns about the independence of the judiciary are increasing, according to Fitch. "Legislation passed in December 2018 paves the way for establishment of special administrative courts to begin adjudicating certain politically sensitive cases from 2020. Fitch does not expect the ongoing Article 7 disciplinary proceedings by the EU against Hungary to make much headway in 2019, given backing for Hungary from Poland and Romania.
From 2021, proposed reductions in EU structural funds could be compounded by potential rifts in relations with the EU (over issues such as rule of law), with an adverse effect on GDP growth," the agency concluded.
