All eyes are on the election now
European gas prices normalized once the roughly three-week period of extraordinary cold weather in January ended. The EU eventually approved its planned diversification away from Russian gas imports, but that did not have any significant market impact, suggesting the availability of sufficient supplies of gas in Europe. Hungary will now have to identify new sources for its gas imports in the short term, which may prove moderately more expensive but is unlikely to pose material supply risk. The government has asked the European Court to repeal the related EU regulation, but reaching a court ruling on that case is officially expected to take a long time.
GDP growth was only marginal in Q4 and full-year 2025 alike, meaning that the economy has not expanded at all over the past three and a half years. The key problem remains decreasing industrial output, still led by the broadly defined car manufacturing sector. On the positive side, consumer demand continues to expand significantly and is likely to become even stronger in the coming months, as the government’s income-boosting campaign measures are implemented. In addition, construction activity is also strengthening, both in the housing and the commercial sector.
Detailed fiscal data has verified the existence of some set-asides made in late 2025, which raised the cash deficit for last year but provide extra room in 2026. There have been no significant changes in current fiscal policy recently. Instead, the government is focusing on the delivery of its previously announced campaign measures, almost exactly as those were promised. For its part, Tisza has published its party program, which includes a substantial amount of extra spending and revenue reduction in 2026-2027. However, it would have a good chance to have cohesion and RRF funds unblocked by the EU if it wins in the election, and the party also has other ideas for savings in the government budget.
Despite the weak economy and decreasing energy import prices, a negative trend took over in the fundamental part of the balance of payments, and the external financing balance ran into a small deficit in Q4. In 2026-2027, the continuation of largely the same trend is most likely. Based on Tisza’s new program, its potential takeover would be unlikely to change this significantly: incoming net capital transfers would increase because of EU transfers, but the trade deficit might also be larger, as the party would probably not start governing with any marked fiscal adjustment.
CPI-inflation fell below the MNB’s medium-term target in January, due in part to structural factors, and in part to likely short-term administrative interference, the latter apparently with the aim of holding inflation down for the election period. This situation is likely to remain for the next two months, to be followed by a renewed rise in the headline inflation rate, reaching the upper end of the MNB’s tolerance band, as the peak of a mini-cycle, around the end of 2026.
Responding to favorable inflation data and the current strength of the forint, the MNB is likely to implement a 25-50 bps base rate cut, in one or two steps within the next two months, possibly starting as soon as next week’s monthly rate-setting meeting. This appears to be the predominant expectation, including that of analysts and the market. It would also fit with the MNB’s current forward guidance, which was changed in December, setting forth data-driven decisions made separately at each rate-setting meeting in the forthcoming period. Importantly, rate cuts are unlikely to continue in the rest of 2026, in view of the high probability of rising inflation during that time.
Europe’s political mainstream, a predominant majority within the EU, is apparently holding its breath, waiting for Hungary’s election results, and expressly hoping to get rid of PM Orbán. A clear and open animosity has developed between the Fidesz government and the EU, which is now regularly taken to the extreme in public talk on the Hungarian side. On a more positive note for PM Orbán, the US government remains friendly and supportive of the Fidesz government, as was reiterated during Secretary Rubio’s recent visit to Budapest. Meanwhile, Tisza’s head had introductory meetings with a series of European heads of government on the sidelines of the recent Munich security conference.
Opinion polls still show a stable and substantial lead of Tisza over Fidesz. Both parties have gained support in recent weeks, with the undecided crowd shrinking further. Tisza has published its detailed policy platform, one that fits well with the European mainstream’s expectations, and has introduced roughly half of its intended future government cabinet. Meanwhile, Fidesz has continued to deliver on its fiscal campaign promises, as well as delivering its harshly anti-EU and anti-Ukraine line of talk, supplemented most recently by similarly aggressive outbursts against large foreign companies operating in Hungary. Tisza tends to bring up Fidesz's major problems, to point out the dysfunctionality of the Fidesz government. Administrative preparations for the election are running normally, despite previous allegations that PM Orbán might want to skip or postpone the election, or to rewrite constitutional law at the last minute.
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