Hungary’s outlook upgrade to stable from positive by Fitch was greeted with incredulity by many analysts. Benoit Anne at Societe Generale wonders if the decision had anything to do with the Mayan prophecy that proclaiming the end of the world on Dec. 21:
What is the last crazy thing you would do on the last day of the world? Well, the guys at Fitch could not find anything better to do than upgrading Hungary’s rating outlook to stable. Now, that really makes me scared.
A bit brutal maybe but the point Anne wants to make is valid — nothing fundamental has changed in Hungary — its GDP growth and debt numbers are looking as dire as before and the central bank is still subject to political interference.
Now, it is true that investors’ worst fear — a default on external debt — hasn’t happened. And, remarkably, Hungary’s currency is among the best performing in emerging markets this year with a gain of around 11 percent against the dollar. The country also now runs a current account surplus, though that is down to the dire state of the economy which has pulverised consumer demand.
Hungary has managed to avert disaster thanks to the euro zone improvements plus the waves of Western money printing which have pushed cash into domestic bond markets (yields of 5-6 percent look attractive and the central bank is slashing interest rates). The possible downside of all this is that Hungary now can escape signing an aid deal with the IMF which would have imposed some conditionality. Anne says: