April 30, 2020 / 10:11 AM / a month ago

Moody's flags increased risk of deeper recession, bigger deficit for Hungary

BUDAPEST, April 30 (Reuters) - Hungary’s Baa3 credit rating with a stable outlook is “well-placed” for the time being, Moody’s said on Thursday, even though the latest global developments indicate a downward shift from its baseline economic scenario released late last month.

The baseline projected stagnation for the Hungarian economy this year and a budget deficit of around 4% of gross domestic product. An adverse scenario reckoned with a 4% to 6% economic downturn and a deficit of over 5% of GDP.

“Obviously, we are currently moving away from the baseline scenario into the more adverse scenario where we see a sharp contraction in growth and also a larger fiscal deficit and a sharper increase in the debt burden,” Steffen Dyck, senior credit officer at Moody’s, told Reuters.

Dyck said the baseline forecast was subject to change as the outlook for the world economy worsened amid the coronavirus pandemic, which has prompted factory shutdowns and large-scale layoffs in Hungary.

Prime Minister Viktor Orban’s government expects the economy to shrink by more than 3% this year, and the finance minister told Reuters last week that the European Union’s 3% of GDP deficit ceiling was not carved into stone if more measures are needed to shore up the economy.

Earlier this week, Standard & Poor’s lowered its outlook on Hungary’s credit rating to stable from positive on COVID-19 related risks.

“The rating for Hungary is Baa3 stable and we think that this is well-placed at this level,” Moody’s Dyck said.

“We have other Baa3-rated sovereigns around the world with sometimes worse figures, Italy with a much higher debt burden and much lower average growth, so from that perspective we think Hungary is well-positioned at Baa3 stable for the time being.”

Dyck said the pace at which Hungary’s main trading partners like Germany recover from the crisis will be key to determining how quickly the central European country emerges from the expected economic downturn.

On Wednesday, Hungary announced a gradual easing in population movement restrictions outside Budapest to ease the strain on the economy, but schools will remain closed effectively until the end of the semester. (Reporting by Gergely Szakacs, editing by Larry King)

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