Hungarian economy could return to a sustained growth path in the second half of this year.Continue reading
Fitch projects that the Hungarian economy will grow steadily from next year, expecting it to help reduce the public debt ratio. The international rating agency also expects inflation to slow sharply, Magyar Nemzet reports.
In accordance with Fitch Ratings’ latest sector analysis, although the recently announced increase in this year’s deficit target poses a challenge to achieving a deficit below three percent, it will still start to decline over the next two years and the Hungarian public deficit will be below three percent by the end of the period.
The Ministry of Finance announced last week that the government is revising this year’s deficit target to 5.2 percent of GDP in view of the sharp rise in spending. The ministry stressed (and this was echoed in Fitch’s latest analysis) that the new deficit target also represents an improvement of one percentage point on last year’s deficit.
The rating agency, which has an investment-grade BBB rating on Hungary’s sovereign debt obligations with a negative outlook, expects the general government deficit to fall to 3.7 percent of GDP in 2024, and 2.8 percent in 2025, reflecting a pick-up in growth momentum.
Fitch Ratings also expects Hungary’s GDP to grow by an annual average of three percent in the 2024-2025 period, after the 0.9 percent decline it expects for 2023 as a whole.
With stable nominal GDP growth and the re-emergence of primary surpluses, the gradual decline in the public debt ratio is expected to continue in the 2023-2025 period, although sovereign debt-to-GDP ratio will remain above the median BBB sovereign debt level for the time being, Fitch Ratings noted in its forecast on Friday.
Furthermore, the rating agency expects Hungary to reach an agreement with the European Commission on the resumption of EU cohesion funding, although the level and timing of disbursements remain uncertain.
Fitch also projects a significant slowdown in inflation in Hungary, with 12-month inflation averaging 5.3 percent in 2024 as a whole and 3.1 percent in 2025. In this environment, the benchmark central bank interest rate could fall to 5-6 percent by the end of 2024.
Via Magyar Nemzet, Featured image: Pixabay