SACE has published a new one focus on Hungary, which we reproduce here in the attachment. Fears of a new recession and deteriorating public finances, combined with excessive foreign dependence, cost Hungary the downgrade by Moody's. According to the rating agency, the Hungarian debt falls one notch from BBB- a BB+ reaching the threshold of speculative grade, and with the further provision of a outlook negative. The reasons for these judgments can be found in three main areas: the public accounts, the financial sector and the trend of the currency.
The level and composition of the debt clearly highlight the vulnerability of the economic system. Indeed, the level of debt to GDP ratio is around 80% and for more than 60% è denominated in foreign currency and not held by residents. The country being so exposed to foreign countries, a variation of the market sentiment and a consequent movement of disinvestment from public debt securities would lead to an increase in the yields of the same and to depreciation pressures against the Hungarian forint. The trend of the deficit is contrasting: after having reached 4% as an effect of the anti-cyclical measures of 2009-2010, it decreased until it turned into a surplus of 2% the following year. However this year, expectations point to a return of the budget deficit to 3%.
They stand out three critical issues notable in financial sector who is going through a difficult moment: the spread between loans and deposits in hard currencies (currency mismatch),high foreign currency exposure, especially with regard to real estate loans, and the reduction of interventions by foreign banks in support of local subsidiaries.
The currency trend was characterized by a notable volatility due to a large capital outflow. The depreciation against the euro and Swiss franc reached 10% and without intervention by the Central Bank this trend should continue according to forecasts.
This situation is closely related to effects of the 2009 recession, which caused a 7% drop in GDP due largely to the collapse in exports. With the adoption of anti-crisis measures and with the increase in foreign demand (mainly from Germany and Austria), there was a positive impact on GDP, which grew respectively by 1,2% in 2010 and by 1,8% in 2011. XNUMX. However, the outlook remains uncertain due to the enormous dependence of the Hungarian economy on foreign countries; Indeed, exports account for 90% of the composition of the GDP and the stock of FDI is equal to half of Hungary's domestic product.
The evolution of the outlook is also linked to relations with the IMF with which negotiations for a support program resumed after the expiry of the last Stand-by Arrangement in 2010, and which could start in the first part of 2012.
Attachments: Focus on Hungary Sace dec. 2011.pdf
