The upgrade reflects stronger economic performance, fiscal improvements, declining external financing and leverage needs and “a gradual moderation of activist monetary policies”. S&P said it now expects Hungary’s economy to grow at an average clip of 2.5% a year in 2016-2019, up from a 2.0% forecast in its previous review in March.

The agency pointed out a “marked improvement” in Hungary’s external financial profile after the 2008-2009 global financial crisis. Hungary has not had a current-account deficit since 2009, and it was a net lender to the rest of the world to the tune of 8% of GDP in 2015, it noted.

It sees the contribution of tax-rich domestic demand to overall GDP growth increasing, positively impacting government finances.

The agency projects the public finance deficit will narrow further to 1.8% of GDP in 2016 from 2.0% in 2015, though it is expected to widen slightly to 2.5% in 2017.

S&P forecasts Hungary’s state debt-to-GDP ratio will “maintain its downward trajectory over the medium term”, falling to 68% in 2019 from 72% in 2015. CIB Bank chief analyst Mariann Trippon said nobody had expected S&P to upgrade Hungary.

Most analysts thought the ratings agency would change its outlook for the country to positive from stable. ING Bank analyst Péter Virovácz also said the decision surprised markets and analysts.

An upgrade by Moody’s in November is practically “in the bag”, he added. Moody’s, which rates Hungary “Ba1”, one notch below investment grade, will next review the country on November 4.

Republished with permission of Hungary Matters, MTI’s daily newsletter.