(orban) the government's pre-election fiscal splurge

The government’s inability to secure long-term EU cohesion funding may dampen private investment inflows and further depress domestic demand

MNCs should expect to see acute political uncertainty amid rising tensions between the European Commission (EC) and Hungary. The latter’s pre-election fiscal splurge may also leave the state of public finances in a dire state, especially considering that the core macro assumptions behind the 2022 budget will not be met and that access to EU recovery funding remains locked. As such, the risk of sharp fiscal correction remains acute, and MNCs should monitor policy implementation closely, as it could be indicative of upcoming demand shocks. Additionally, Hungary’s sympathies toward Russia and the increasing likelihood that the government will be unable to secure long-term EU cohesion funding may dampen private investment inflows and further depress domestic demand across most customer segments.


The ruling Fidesz-KNDP alliance has won an overwhelming victory, obtaining 49.3% of the vote, but gaining more than two-thirds of seats in parliament. In his winning speech, Prime Minister Victor Orban hailed his victory over his “opponents,” naming Brussels and Ukrainian President Volodymyr Zelenskiy. Following the elections, EC President Ursula von der Leyen will initiate a rule-of-law procedure that may see Hungary lose access to both EU cohesion and recovery funds.

Our View

While Orban’s electoral victory was most certainly expected, Fidesz’s solid parliamentary gains and the weak performance of the opposition may have changed the PM’s political considerations. Indeed, the win not only allows the ruling party to change the constitution at will but also may incentivize Orban to dig in his heels on a variety of issues, including the rule of law and Hungary’s supposed neutrality when it comes to the Ukraine conflict. Orban’s insistence that Hungarians will continue to enjoy relatively cheaper energy also highlights Fidesz’s likely intention to try and block any potential sanctions on Russian energy. However, this political stance might prove to be a significant miscalculation that will leave Hungary increasingly isolated, as even Poland, a traditional ally of Fidesz on most EU issues, has sought to distance itself from the Hungarian government. Additionally, the swift response of the EU and the fact that a suspension of EU funding cannot be vetoed, as it requires only a qualified majority, suggest that a downside scenario for the market becomes increasingly likely. While Orban is likely to use his solidified political position to extract some concessions from the EU, any such attempt is likely to be met with outrage in light of his close relationship with Vladimir Putin and may further serve to increase external political pressure on the country. 

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