Fitch Projects Hungary’s Inflation Will Fall to 8-10% by End-2023

  • 26 Jun 2023 10:06 AM
  • Hungary Matters
Fitch Projects Hungary’s Inflation Will Fall to 8-10% by End-2023
Fitch Ratings has affirmed Hungary’s ‘BBB’ sovereign rating with a negative outlook. “Hungary’s ratings are supported by strong structural indicators relative to ‘BBB’ peers, a record of economic growth fuelled by investments and solid net FDI inflows,” Fitch said in a scheduled review.

“These are balanced against high public debt relative to peers, a record of unorthodox fiscal and monetary policy moves, and a worsening of governance indicators in recent years,” it added.

The negative outlook on the rating reflects “risks around the credibility of macroeconomic policy”, Fitch said, noting the cost of energy support measures, sectoral windfall profit taxes and high inflation.

Monetary policy transmission is being “hampered” by targeted mortgage interest rate caps, it added.

Fitch said Hungary’s external position had “substantially improved” this year on the falling cost of energy imports but the country’s high energy dependence on Russia remained “an important risk factor”.

Fitch continues to expect that Hungary will reach agreement on accessing its European Union funding, but said the timing and size of transfers from Brussels remained uncertain.

“The latest developments in EU-Hungary relations are consistent with our view that disbursements of [Recovery and Resilience Facility] funding are unlikely before end-3Q23,” it added.

Fitch projects Hungary’s annual inflation, which peaked at 26.2% in January, will fall to 8-10% by end-2023, supported by base effects, easing global commodity prices, slowing domestic demand and a stronger forint.

Fitch forecasts a budget deficit of 4.1% of GDP in 2023, a tad higher than the 3.9% government target.

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