According to the rating agency Standard and Poor’s, the BBB category means that the country can meet its debt obligations but is also exposed to unfavorable external shocks and internal weaknesses.
Economist Magdolna Csath mitigates the cautiously optimistic forecasts of domestic analysts and takes a closer look at Standard and Poor’s BBB rating, especially the change in outlook from positive to negative.
In her article, published in Világgazdaság last Thursday, she pays particular attention to two external imponderables: the heavy dependence on Russian gas, and the further blocking of Hungary’s EU rescue funds from the Recovery and Resilience Facility (RRF). There is no doubt that the energy-intensive Hungarian economy would be extremely vulnerable in the event of a supply crisis.
What Standard and Poor’s does not take into account, however, is the fact that Hungary is the best secured among all EU countries with its corresponding contracts with Russian suppliers. The back-and-forth surrounding the RRF, on the other hand, does indeed harbor dangers. Obviously, the decision-makers in Brussels want to fully exploit the political pressure potential in order to obtain ideological concessions from the Hungarian government.
The rating agency also attests to Hungary’s ability to meet its debt obligations, except that a continued freeze on EU funds would be accompanied by a further increase in government debt. The strikingly different handling of the “creditworthiness” of its northern neighbor Slovakia (four levels higher than Hungary, above the “no longer recommended for investment” category), which has a thoroughly comparable economic structure, with a similarly energy-intensive assembly industry, suggests that the “correct” political orientation of the Slovakian government is at least indirectly taken into account in the process.
The professor’s warning signal regarding the low share of high value-added sectors and relatively low productivity will probably not go without reverberation in Hungary. The fact that the outsized share of the automobile sector (28 percent of manufacturing) could jeopardize the growth prospects of the Hungarian economy, is also likely to have spread to Budapest. Debrecen’s mega-investment can be seen as a step toward differentiation of the economic partners, even if the automobile industry continues to dominate.
Csath’s conclusion, that
“we should no longer use state aid to encourage the relocation of energy-intensive assembly companies with low productivity,”
must sound like a harbinger of doom for the Hungarian government. One can be confident that the decision-makers in Budapest will understand the signs of the times and focus on investors who see Hungary not only as Europe’s extended workforce, but also as a country with an above-average skilled workforce and innovative potential, compared with the rest of Europe.