PGIM: A new chapter for Hungary
Centre-right pro-European opposition party Tisza won a landslide majority in the new Hungarian parliament ending the 16-year rule of Fidesz under Viktor Orban representing a new chapter for the country and its economy.
Despite an election win that markets will welcome, Hungary faces significant economic and political challenges as it transitions to a new government. The immediate priority for Péter Magyar’s Tisza party is unlocking EU funds, which have been withheld due to rule-of-law conflicts with the previous government, amounting to approximately €14 billion.
It seems unlikely that government will be able to make the necessary legislative changes quickly enough to meet the deadlines to access the majority of these funds. Even though the government has a supermajority, they’re likely to meet resistance and obstacles in the near term from institutions influenced by the previous administration. Still, some of the RRF grant funds should be unlocked before August deadline and, in due course, cohesion funds.
Hungary’s economy has stagnated since 2018, lagging behind regional peers. Limited access to EU funds, weak consumer demand, and negative investor sentiment leading to lower domestic and foreign investment have all contributed to this stagnation. Injecting EU funds could provide a much-needed economic boost, particularly for local infrastructure, healthcare, and public transport, namely areas which are critical to improving living standards and addressing voter concerns. A boost in consumer and business sentiment will also help.
Fiscal challenges are still present. While immediate deficit cuts may not be necessary, presenting a credible medium-term economic plan is crucial to stabilising the country’s credit rating, currently on a negative outlook. Growth recovery, supported by EU funds and better sentiment, could improve fiscal health and investor confidence.
Improving relations with the EU and addressing corruption and rule-of-law issues are essential for long-term stability and perception. Addressing this is just as important for market sentiment as the hard economic numbers. A credible macroeconomic policy, combined with resumed EU funding, could enhance Hungary’s growth prospects, stabilise its fiscal position, and improve its international standing. While challenges remain, the new government has a unique opportunity to address systemic issues and foster economic recovery.
