Fitch likely to downgrade Hungary’s sovereign rating on weak fiscal balance

Fitch Ratings is likely to release its review of Hungary’s sovereign rating later today. The current rating is BB+, which seems to be downgraded, given the country’s weak structural fiscal balance maid government plans to adopt a softer fiscal policy.

However, back in November 2015, it seemed that Hungary can get back its investment grade back, but now, this seems foggy after a wrecked economic structure. Also the first quarter’s GDP growth was extremely weak, the second worst in EU after Greece performance.

Although it is thought to be only a temporary break of Hungarian growth, the figure highlights how dependent the economy is on the EU funds flows and the vehicle production.

"Also the non-transparency around the NBH’s foundations may set a bar against upgrade," KBC said in a research note.

The last few days’ market movement suggests that the bigger surprise would be if Hungary gets back the investment grade, so in that a case the forint may strengthen while yields may drop, the brokerage said.