Following the elections of April 2026, Hungary is preparing to enter a period of political stability under a government with a two-thirds majority led by the TISZA Party. The incoming administration has outlined a decisive change of course in economic strategy, aiming to restore institutional predictability, strengthen alignment with the EU, and re-anchor economic policymaking to a more market-oriented and rules-based framework. In the medium term, these priorities also reopen the prospect of eventual accession to the euro area. The immediate post-election reaction of the financial markets was clearly positive, reflected in a marked contraction of the risk premium and a stronger forint.
Despite this initial positive sentiment, the new government inherits a challenging macroeconomic and fiscal context. Economic growth has been weak for years and is expected to remain subdued in 2026, at around 1–1.5%, well below the assumptions embedded in the previous government's budget.
Fiscal risks are considerable: within three months, over 80% of the full-year cash deficit had already been realized, while the recently announced social measures and the further planned tax cuts are set to widen the gap. Overall, existing and newly announced expenditure items exceed the revised deficit target by about 1.3% of GDP, indicating a significant underlying slippage.
Although the government has outlined potential balance-improving measures, such as a wealth tax and lower state operating costs, the details remain vague and their stabilizing effects will probably materialize only gradually. Conversely, a faster absorption of already unblocked EU funds represents a tangible short-term opportunity: approximately HUF 2,600 billion remain available, and accelerated drawdowns could both support growth and improve the fiscal balance. However, the release of the still-frozen funds is expected to be a lengthy process, with significant effects on growth only from 2027.
From a cyclical perspective, early-year data indicate a modest improvement in activity (+0.8% quarter-on-quarter), driven mainly by household consumption. However, Hungary's economic structure, highly open and export-oriented, limits the multiplier effects of domestic demand, since additional consumption quickly translates into higher imports. Investment activity remains subdued due to global uncertainty, weak profitability expectations, and delays in capacity expansion. In this context, the government's stated focus on strengthening small and medium-sized enterprises could, over time, contribute to a more resilient growth model anchored to the domestic market, although the labour shortage and external headwinds will remain binding constraints. Overall, GDP is unlikely to grow significantly more than 1% in 2026, with a stronger first half and a declining second half.
Inflation eased markedly at the start of the year but rose slightly in March, with fuel prices playing an important role. Disinflationary forces include global food market trends and a strong forint, while services inflation remains sticky due to wage pressures. Looking ahead, the inflation outlook is highly uncertain due to ongoing geopolitical tensions and energy market risks. We expect inflation to accelerate towards 5% by the end of the year, averaging around 3% in 2026.
With a significant risk premium already priced in after the elections, the central bank faces less pressure to follow external tightening cycles. We expect the MNB to keep its policy rate at 6.25% until the end of the year.
Focus Economia in collaboration with UniCredit Bank.
