The report notes that reform efforts have strengthened the resilience of both Hungaryʼs and Portugalʼs economic and fiscal profiles in the last few years. Meanwhile, while Italy enjoys the benefits of diversification and wealth, Moodyʼs says the new government has slowed down the reform momentum needed to restore competitiveness and put public debt on a downward trend.

"Italy, Portugal and Hungary still face sizable credit challenges in 2019," said Evan Wohlmann, Moodyʼs vice president, senior analyst and co-author of the report. "In all three countries, the emergence or lack of effective policy responses will drive our assessment of creditworthiness."

Of the three countries, Hungary managed to reach its pre-crisis peak the earliest, four years ago. The same milestone was reached by Portugal in Q2 2018, while Italyʼs economic output is still some 5% below its peak a decade ago, the report states.

Interestingly, observes Moodyʼs, it was Italy that never really accumulated large net external liabilities, while both Hungary and Portugal faced the crisis with already high external imbalances. Even so, the report stresses that reforms led to a turnaround in current account balances in the latter two countries.

Moodyʼs forecasts real economic growth between 2018 and 2020 of 3.6% in Hungary, about twice as much as in Portugal, and three times Italyʼs forecast percentage.

The three countries face structural challenges such as poor demographics, relatively weak overall productivity growth, and limited fiscal space, all of which will constrain long-term growth and upside credit potential in case they are left unaddressed, says the report. In addition, most of the EU faces the problem of becoming "super-aged" by 2030 at the latest, meaning that 20% of the given countryʼs population will be 65 years or older.

All three countries have large public debt burdens, above the "Baa"-rated median of 48% of GDP in 2017. The report notes that while the Hungarian banking system is moderately sized compared to those of Italy and Portugal, government measures are aimed at larger domestic ownership, which raises contingent liability risks compared to the period before the crisis.

Regarding the future, Moodyʼs predicts Hungaryʼs policy responses to be tested by "more challenging external conditions" in the upcoming period.