Budapest, Hungary – Hungary could face a deeper economic recession than initially expected due to the coronavirus pandemic, credit rating agency Moody’s warned on Thursday.
“We are currently moving away from the baseline scenario”, which projected a GDP stagnation for Hungary in 2020 and a budget deficit of 4%, “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.
According to these “more adverse scenarios”, Hungary’s gross domestic product could drop by 4% to 6% in 2020, and the deficit could increase to more than 5% of GDP by the end of the year.
Moody’s analysts warned that their economic outlook for Hungary was subject to change and will depend on how the pandemic unfolds in the comings weeks and months. The resilience of Budapest’s main economic and trading partners, especially Germany, will be key to determine how quickly Hungary will be able to recover from the recession.
The Hungarian government expects an economic downturn of more than 3% in 2020, in line with estimates from the International Monetary Fund (IMF) which projects Hungarian GDP to contract by 3.1% – one of the lowest contractions among EU economies – and unemployment to rise above 5% of the working-age population, at least.
Hungary’s Visegrad neighbours will also see their gross domestic product drop sharply in 2020, according to the IMF: -7.5% in the Czech Republic, – 6.2% in Slovakia and -4.6% in Poland, the latter facing its first recession in thirty years.
Although the recession should be worse than the 2008-2009 financial crisis, IMF analysts note that the recovery should also be much faster than ten years ago, with growth expected to bounce back in positive territory in 2021.