Moody's Investors Service will revisit Hungary's sovereign credit rating this Friday, focusing on the country's economic outlook, which has been trending negatively.

This reassessment comes six months after Moody's downgraded its outlook from stable to negative under the Baa2 rating.

Market analysts, such as Zoltán Török, lead analyst at Raiffeisen Bank, suggest that while a downgrade is likely, the timing remains uncertain.

The latest assessment by Standard & Poor's (S&P) also highlighted concerns for Hungary, as it downgraded the country to BBB– in April 2022, a classification just above speculative grade, often referred to as 'junk'.

In contrast, Fitch Ratings diverged from the negative trends seen by its counterparts, upgrading its outlook for Hungary's BBB rating from negative to stable in December, citing the easing of energy crisis concerns following the onset of the Ukraine war.

However, the macroeconomic landscape has shifted since then, with rising risks identified in Hungary's economic forecasts.

The government has announced an increase in the budget deficit target for the coming year, leading experts to anticipate that actual deficits may exceed these new limits.

Furthermore, pre-election promises, which can lead to increased fiscal spending, are seen as another factor that could exacerbate the situation.

Last November, Moody's had indicated that the decline in outlook was, in part, due to the delay in EU funding, a situation that remains unresolved as tensions between the Hungarian government and the European Commission have continued to escalate.

Analysts also note that the Hungarian economy is particularly vulnerable to the tariffs imposed during the Trump administration, which tend to have a disproportionate impact compared to other EU nations.

The overarching sentiment among analysts suggests that a downgrade by Moody's may be imminent, but the precise timing of such an action is uncertain.

Should a downgrade occur, Hungary would find itself at the lower end of the investment-grade category, aligning it more closely with S&P's current classification.

Currently, the financial markets do not reflect expectations of an imminent downgrade from Moody's, which may indicate that the agency might defer its decision until November.

However, analysts predict that Fitch's decision next week will likely reverse its previous outlook adjustment, maintaining the BBB rating but shifting the outlook back to negative.

If a downgrade is executed, Hungary would face increased costs related to sovereign debt financing, as higher yields would be required to attract investors.

This scenario could lead to elevated interest payments in the long term, further straining the government's fiscal plans and the overall budget deficit.

In terms of economic growth projections, the Hungarian government initially aimed for a 3.4 percent growth rate for 2023 but has since reduced that forecast to 2.5 percent.

Analysts suggest that achieving even a growth rate above 1 percent would be a significant accomplishment under the current economic conditions.

For 2024, the government projects a 4.1 percent growth target, which analysts deem unrealistic given the present circumstances.

A growth rate of 2.5 percent for next year now appears to be a more feasible target based on current assessments.

The government's claim of maintaining a 3.7 percent budget deficit relative to GDP in 2023 and 2024 is now in question, with actual growth rates required for these projections likely to fall short.

A similar trajectory is expected for public debt, which the government aims to reduce from 73.5 percent of GDP in the previous year to 73.1 percent by the end of 2025, and further to 72.3 percent by the end of 2026. Recent data indicates a concerning rise in debt levels, with the debt-to-GDP ratio reportedly increasing to 75.5 percent in the first quarter of this year, a two-percentage-point rise in just three months, further complicating Hungary's creditworthiness and likely prompting further downgrades.