Fitch still sees de-escalation of Hungary-EU tensions

Ratings

Fitch Ratings on Thursday acknowledged that an election victory by Viktor Orbán's Fidesz-KDNP government on Sunday "extends tensions" with the European Union over rule of law issues, but said a de-escalation of those tensions remains its base-line assumption, according to a report by state news wire MTI.

Fitch said the European Commission's decision days earlier to trigger a conditionality mechanism that could result in the suspension of Hungary's EU funding over the rule of law disputes "could signal a hardening of both sides' stances", adding that the scenario creates risks to its view that Next Generation EU funding will be disbursed from the second half of 2022.

The agency said it continues to factor the receipt of the EUR 7.2bn of funding - equivalent to 5pc of 2021 GDP - into its growth forecasts, but added that failure to secure the funds could cut Hungary's mid-term growth prospects, by as much as 1.5 percentage points in 2023.

Fitch noted that it knocked down Hungary's GDP growth forecast for 2022 to 2.3% as high inflation impacts domestic demand and the war in Ukraine hits external demand.

The agency affirmed Hungary's BBB sovereign rating with a stable outlook at a scheduled review in January.

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