Jumping into the dark
Less than four weeks before the election, there is no sign of any significant change in the previously known odds. On one hand, Tisza maintains a significant and even moderately increasing lead in the polls. But on the other, these surveys do not include the views of those who vote from abroad, and the majority of parliamentary seats will be decided in heavily gerrymandered constituencies electing individual candidates, rather than by the nationwide vote on party lists. In addition, Mi Hazánk, a natural ally for Fidesz, will likely pass the parliamentary threshold, whereas other small parties are much less likely get any seats. In this light, the election race seems to be very tight at this time.
Regarding consequences, the likely appearance of two forces of largely equal power in the National Assembly, combined with Fidesz’s dominance of a number of key non-government positions and the somewhat loose definition of the President of the Republic’s responsibilities after the election, may create an entirely new and untried political situation. In this sense, the upcoming few months may look a bit like jumping into the dark. On the positive side, fears that Fidesz may try to rewrite constitutional law or postpone the election have not been justified. Instead, PM Orbán affirmed recently that regular parliamentary elections are a key element of domestic stability, they need to be properly prepared and implemented, and the results must be accepted by everyone. For the moment, it seems that he wants to win the election under the existing legal framework, rather than changing the rules at the last minute.
GDP details for Q4 exhibited a truly interesting picture, with fixed investment stabilizing but consumer demand growth decelerating, the latter despite the systematic delivery of the government’s election-related measures to expand household income. Construction output increased significantly. In January, even industrial output strengthened a bit, following the European trend that started in 2025. For sure, the existing growth trend of slow strengthening may be altered by the new Middle-East conflict, but even the immediate prospects of the latter are unclear in that regard.
As the global energy situation stands right now, Hungary is experiencing a material hit through the elevated prices of its oil and gas imports. In this report, we provide some rough estimates of the size of this impact, using the latest available price and exchange rate data. The Druzhba oil pipeline is still closed, and is likely to remain so in the foreseeable future. However, Hungary can continue to import oil through Croatia, but it does not have access to Russian Urals, which the Croat authorities are not prepared to transit, referring to US sanctions. This problem has a further negative impact on import costs, even though the cost of Russian oil has also risen sharply.
CPI-inflation spectacularly collapsed in February, meeting a key condition set by the MNB for further base rate cuts. However, we still do not expect a further rate reduction in March, because of the sudden and substantial jump in energy import prices, some renewed weakening of the forint, and the complete lack of calm in global markets, which are all in conflict with the Bank’s other key condition.
The government and the MNB have acted quickly to minimize the impact of higher energy prices and market disquiet on domestic inflation and the forint’s exchange rate. This took the form of temporary price caps on fuels, this time supported by lowering excise taxes, and the MNB announcing its readiness to sell FX to energy importers. Both measures are conveniently affordable, as the temporary tax cut is not very expensive, and as official reserves were at a record high at end-February. However, much of the higher energy import prices will be a burden for the government budget, further complicating the task of fiscal stabilization for whatever government emerges from the election. The 2025 fiscal deficit ratio ended up moderately below the (several times modified) target, but the first two months’ cash budget results were really weak, almost exactly as those during the previous election campaign four years ago.
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