The election race has become tighter
Tisza’s lead in the opinion polls has narrowed somewhat over the past month. This was not so much because Tisza might have lost momentum in its campaign, as it has just completed a successful primary vote to select MP candidates and is moving forward towards releasing a policy program by January. However, Fidesz has intensified its own campaign, including the use of unorthodox techniques such as inventing apparently fake policies for Tisza and fervently protesting those, in addition to returning to its formerly successful policy of generating war hysteria. All this seems to work remarkably well in activating the Fidesz support base, surpassing even the efficiency of the government’s fiscal campaign gifts, which have produced little positive feedback from the general public so far.
The forint market was stirred up recently by a rumor that PM Orbán may be considering a switch to a presidential system, getting himself elected as President of the Republic before the election. This idea has long been a part of public thinking, but we are quite confident that such a scenario cannot be Mr. Orbán’s first choice, because of its complicated and very risky nature. Fidesz has noisily protested, and leading political experts have expressed a negative view on the practicality of this idea.
Energy import prices continue to be depressed, especially for natural gas but also for crude oil. Lower energy prices keep helping the BOP and are increasing the sustainability of the current strong forint policy. The waiver from Russia-related sanctions, extended by the US government to Hungary, still has not appeared in any official announcement in written form, but it most certainly exists and works in practice. A recent Ukrainian attack on the Druzhba oil pipeline has not affected the continuity of Russian oil shipments to Hungary. The EU has recently moved closer to deciding on the medium-term end of gas imports from Russia. Hungary will not be able to veto that decision.
October data reflected largely the same bleak growth picture as that recorded earlier this year, with contracting industrial output and exports, and a decent but not at all accelerating expansion of consumer demand. The thrust of the latter was probably contained by a stormy pickup of households’ demand for the newly introduced cheap housing loans.
The central government’s cumulative cash deficit ratio rose slightly in November, but it was in line with the most recently revised annual fiscal target. Unusually, fiscal decision-makers stepped back from the idea of reducing the rate of the social contribution tax next year, thus cutting the size of the election campaign bill. The late-fall rating review season has been survived without a downgrade by top agencies, despite a change in Fitch Ratings’ BBB outlook to negative from stable. The government’s gross debt ratio has risen moderately since end-2024. The government has applied for a large amount of loans under the EU’s new rearmament facility. A similar amount was tentatively allocated to Hungary in September, and it is expected to be known soon if those loans will be indeed accessible for the country.
Consumer inflation fell in November, on a fuel-price-related base effect, depressed energy import prices, the strong forint and the beneficial impact of administrative price controls. Actual data for the month was somewhat better than analyst expectations. Inflation is widely predicted to fall further in December and H1, before rising above the MNB target range once again, on the inflationary impact of pre-election policies to boost consumer demand, and also on the likely macro adjustment after the election, the latter including the phasing out of administrative price controls.
Despite the most recent improvement, neither the current inflation picture nor the prospects for 2026 appear convincing enough to satisfactorily underpin any early loosening by the MNB, according to the typical analyst view. However, the Bank hit a more optimistic tone at its December rate-setting meeting, when the Q4 inflation report was also discussed. Even though the Bank expects that the 3% inflation target can be reached in a sustainable way only by H2 2027, it is still forecasting the average headline rate within the its tolerance range in each quarter until then, and said it would consider a base rate change on a data-driven basis at each rate-setting meeting starting from January.
Finally, the "financial shield" PM Orbán was talking about when returning home from the US is to be regarded as nonexistent, after President Trump specifically denied that the US government would have made any such commitment. Within the EU, Mr. Orbán once again has taken positions diametrically opposed to the mainstream view on a number of key issues, including migration, gas imports from Russia, and Ukraine policies, such as extending further financial assistance and the long-term freezing of currently blocked Russian assets. Given this spectacular lack of agreement and cooperation, it remains doubtful if Hungary’s requests for large amounts of SAFE loans and off-the-rules access to RRF funds will be indeed honored.
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