Today, S&P lowered Hungary's long-term foreign and local currency issuer credit rating to BBB- from BBB. Hungary's rating is now only one notch from junk status. The outlook is negative. The Hungarian forint has plummeted with EUR/HUF rising to 311-312, not far from the all-time high.
S&P cites concern over the deterioration in economic and fiscal indicators. The rating agency acknowledges that the IMF/EU package brings some support. However, S&P expects GDP to contract by 6% y/y in 2009 - roughly double the official/IMF target. This will make it very difficult to obtain the general government deficit target of 2.9% of GDP in 2009. Hence government debt is likely to rise faster than expected - to 83% of GDP by end 2009 according to S&P.
