Extreme election uncertainty magnifies risks of macro forecasts
Less than three months before the parliamentary election, there remains extraordinarily high uncertainty as to the likely outcome. Opinion poll results are diverse, even though on average they suggest that the opposition Tisza is distinctly more popular than Fidesz. However, given the existing heavy concentration of control over campaign financing, the mainstream media and the election process on Fidesz’s side, it seems much more realistic to speak of largely equal chances.
A further source of uncertainty of no lower significance is the question if Tisza would be indeed able to take over and start governing in an orderly fashion, should it win the election vote. It seems highly likely that Fidesz would move essentially in line with existing law, but there are various legal techniques to hamper a takeover and to make the new government’s operation very difficult or even impossible.
It would be easy to say that whatever government arises from the election will have to start a forceful fiscal adjustment, to please the EU, rating agencies and ultimately financial markets. But should Tisza win and take over, Fidesz could do everything to make fiscal stabilization very hard, with a view to causing an early failure of the new government and to make new elections necessary at the earliest possible time. We saw something like the latter being tried in 2002, the only previous occasion on which Fidesz was voted out of power. Such attempts could be partially countered by a likely strong tailwind to Tisza coming from the EU, but it is an open question how much impact the latter could have.
All that said, our main forecast scenario, the one detailed in this report, is based on the assumption of an ordinary outcome of the election, and subsequent reasonable government policies with proper implementation. Once again, the short-term outcome will not be decided primarily by who wins the vote, but much more by what comes about after election day. At present, we treat possible post-election irregularities as unusually high risk, with a decent probability of manifestation. Looking ahead, there does not seem to exist any easy happy end in this story, unless one is a devoted supporter of Fidesz, who gets vindicated by the election result.
But anyway, a reasonable normal scenario for 2026 includes moderately stronger economic growth, as the Eurozone is recovering slowly and as the temporary loosening of fiscal policy will likely have its impact. This should come together with a fiscal deficit no higher than the 2025 actual and with surprisingly low inflation in H1, followed by renewed acceleration of the latter in the second half of the year. The balance of payments was largely saved by depressed energy prices and the strong forint in 2025, but the built-in trend of deterioration will eventually take over. In 2027, the basic trend will have to be one of stabilization, both on the fiscal front and also in monetary policy. Hence, GDP growth is unlikely to accelerate significantly further from this year.
Finally, the MNB has changed its forward guidance in December, potentially bringing much closer the time for the first base rate cut after a long break. We think a small rate cut in late March is quite possible, once the MNB has seen the outcome of the usual annual repricing at the outset of the year, with special attention to the labor-intensive service sector. However, any more significant policy easing seems much less likely, as the MNB will have to keep in mind the prospect of higher inflation later in 2026.
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