EM fundamentals continue to improve, with sound growth performance, declining inflation, and decreasing external vulnerabilities, Societe Generale said in a recently published research note, painting a positive picture of Hungary too. The French investment bank believes several economies in Central and Eastern Europe, including Hungary, should be upgraded.
Public debt has been on the rise, but EM still compares very well versus developed markets, SG said.
In view of the recent evolution in fundamentals, we find that Russia, Argentina, Bulgaria, Croatia, and Hungary would deserve an upgrade - although in the case of Russia, the sanctions could delay the decision.
A combination of solid economic growth, trade surplus, and external deleveraging is making CEE countries on track for further upgrades, SG added.
Based on SG’s sovereign credit model, South Africa, Mexico, China, and Chile are the most vulnerable to potential downgrades.
The chart below shows how close SG things given economies are to an upgrade. As you can see, Hungary moved out of the +/-0.3 margin error band and SG identified a nearly 0.4 upgrade pressure.
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