The rating agency also predicts inflation in the country will experience a sharp slowdown.
Despite the recently announced rise in this year’s deficit target posing a challenge to reaching a deficit under 3%, it will begin to fall over the coming two years, and Hungary’s public deficit will be under 3% by the end of the period, Hungary Today reports.
Last week, the Ministry of Finance said the government is revising this year’s deficit target to 5.2% of GDP due to the steep increase in spending. The ministry said the new deficit goal is an improvement of one percentage point on the 2022 deficit, which was echoed in Fitch’s most recent analysis.
The global rating agency, which currently has an investment-grade BBB rating on the country’s sovereign debt obligations with a negative outlook, forecasts the general government deficit to decline to 3.7% of GDP in 2024 and 2.8% in 2025, signalling a growth momentum rally.
Furthermore, Fitch also predicts Hungary’s GDP will grow by an annual average of 3% in 2024/25, following the 0.9% decline forecast for 2023 as a whole.
In addition, the rating agency predicts Hungary will come to an agreement with the European Commission on the continuation of EU cohesion funding. That said, there is still uncertainty surrounding the timing and level of disbursements.
Fitch also predicts a considerable slowdown in inflation in Hungary, with 12-month inflation averaging at 5.3% next year as a whole and 3.1% in 2025. As such, within this environment, the central bank’s benchmark interest rate could drop to between 5% and 6% by the end of 2024, the Hungary Today report adds.
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