The new Hungarian government will face significant macroeconomic and public finance challenges following the election, driven by weak economic growth, a high budget deficit and a rising public debt burden, Fitch Ratings said in an assessment published in London, financial website Portfolio.hu wrote on April 14.

The decisive victory of the Tisza Party is expected to improve relations between Hungary and the European Union, while reducing the risk that institutional resistance could hinder the implementation of the new government’s policy agenda, it said.

Fitch analysts said they would now focus their sovereign credit assessment on the credibility and feasibility of the incoming government’s fiscal consolidation strategy, as well as its impact on debt dynamics and economic growth.

The agency said pre-election fiscal loosening, rising debt levels and an uncertain consolidation path had been key factors behind its decision in December to revise Hungary’s “BBB” sovereign rating outlook to negative.

Fitch said the Hungarian economy has essentially stagnated since 2023, with average annual GDP growth of just 0.1%, significantly below the 4.2% average recorded between 2015 and 2019.

According to the report, weak growth has been driven by an unfavourable external environment, rising uncertainty, a decline in public investment, and structural economic challenges, including stagnating labour productivity and weakening external price competitiveness.

At the same time, Fitch said it expects Hungary’s economic growth to accelerate to 2% in 2026 and 2.4% in 2027, which is below the government’s 3% target for 2026.

The recovery is expected to be supported by a rebound in private consumption following pre-election fiscal easing, stronger investment activity, and new export capacity from the automotive and battery manufacturing sectors, it added.

However, the agency warned that sustained high energy prices due to geopolitical tensions could pose risks to the outlook, noting that Hungary is a net energy importer and highly dependent on EU economic performance.

Fitch also said that the pro-EU stance of Tisza Party leader Peter Magyar and the party’s strong parliamentary mandate are likely to improve cooperation with Brussels, including the possible unblocking of EU funds and progress on addressing rule-of-law, judicial independence and corruption concerns.

This could pave the way for the release of currently frozen EU financing, although it remains unclear how quickly this would translate into stronger growth, it added.

The budget gap is slated to rise to 5.6% of GDP this year from 4.7% last year, mainly due to pre-election fiscal expansion and energy-related subsidies, and is projected to decline to 5% of GDP by 2027, it added.

Just days before the election, the National Economy Ministry released Q1 fiscal data showing that the cash-flow-based deficit exceeded 80% of the full-year target. In a short comment, the ministry added that the 5% deficit target could be met.

The agency said the new government would need to restore confidence in fiscal policy and strengthen the budgetary framework after developing a medium-term consolidation strategy, pointing to frequent changes in fiscal targets and repeated deviations from budget plans in recent years.

Fitch also noted that Hungary’s commitment to reducing public debt has not been reflected in recent performance, as the debt-to-GDP ratio increased from 73.3% in 2023 to 73.5% in 2024 and 74.6% last year.

The government is in a tight spot as reviews by the top three rating agencies are due within the next two months. Moody’s is due to review Hungary on May 22, followed by Standard & Poor’s on May 29 and Fitch Ratings on June 5.

The economic programme of the incoming government is based on restoring EU funding, tax reform, pension increases and a more competitive growth model, as the Orban government's fiscal policy had lost credibility, Andras Karman, Tisza Party’s expert on budgetary and tax policy, told leftist daily Nepszava. After a revision, the government will submit a new budget within 100 days. The election pledges would be financed through a combination of EU funds, fiscal reforms and economic growth, while also aiming to ensure a sustainable reduction in the budget deficit.

On the broader outlook, he said GDP has stagnated over the last three years, due to deep structural problems rather than cyclical ones.  Hungarian wages have fallen behind the EU average, with only Bulgaria and Greece ranking lower, and Romania is now ahead of Hungary. However, wage convergence cannot be sustained without productivity growth. The Orban government’s economic policy in the past 15 years has been characterised by an extensive growth model, driven by low-cost labour and foreign investment in assembly industries, which boosted output until 2020 without improving productivity. This model, he argued, had exhausted its potential and called for a shift towards fair competition, reduced corruption, and greater investment in education, healthcare, and human capital.

The budget expert also urged a more innovation-driven, productivity-focused economy with a stronger role for SMEs, which he said would be key to restoring growth and wage convergence.

On taxation, he said the system was unfair as lower-income households bear a relatively higher burden due to the highest VAT among OECD countries. He flagged that the headline 27% rate will remain in place, but consumers would pay 5% or no taxes on medicines, firewood and healthy food, saying that targeted reductions would be more effective.

Targeted income tax cuts would be launched via a tax credit for incomes below the median wage, affecting around half of taxpayers, while the minimum wage tax burden would fall from 15% to 9%.

The new Tisza government, in line with its election promises, will introduce a new annual wealth tax of 1% on assets above HUF1bn, covering both productive assets, such as company ownership and non-productive assets, such as luxury property.

The pension reforms would address long-standing disparities, including higher minimum pensions, retention of the 13th and 14th month pensions and the introduction of a voucher card for pensioners that can be used for food and medicine.

He said pension indexation could be adjusted in the longer term to better track wage growth, with details to be worked out after consultations.

The reduction of the retail sector taxes would be considered in the longer term, provided they led to lower prices for households. Multinational companies, bearing much of the impact of the windfall tax, have called for a reduction in the levy, which has led to massive losses, as well as unorthodox measures such as a profit margin cap.

In the interview, Karman did not touch on that, nor on plans on the fuel price cap. The measure was introduced without an end-date on March 9, and according to energy analysts the measure has played a part in the steep fall of the strategic reserves. This had fallen to a record low of 44 days from over 90 days, at the onset.

On the government’s broader fiscal policy plans, he said the focus was not on rapidly cutting the deficit but on establishing a credible, medium-term fiscal policy that would put public debt on a declining path. Predictable budget management and sustained economic growth are both needed to achieve lasting deficit reduction, he said, noting that the release of some €22bn of frozen EU funds is the most vital thing.

Additional resources could be generated by reducing corruption and eliminating overpriced public procurements, which he said could yield HUF1 trillion in savings each year and that setting target dates for the euro could cut risk premiums. 

The government aims to meet the criteria for adopting the euro by 2030, which he said would support lower inflation, faster growth and improved investor confidence.  A revised budget and a medium-term economic programme outlining the path to euro adoption are expected to be prepared in the coming months, he added.

In his first international press briefing after the election, Magyar also spoke about the government’s plans to adopt the euro, comments that helped drive the forint to a four-year high. The EUR/HUF pair moved from 376 to 363 in the last two days.

In an interview with Portfolio.hu, former central bank governor Akos Peter Bod, said the new government will inherit a significant economic legacy, uncertain public finances, and a challenging external environment.

In its latest forecast released on April 14, the IMF lowered its 2026 global GDP outlook from 3.3% in January to 3.1%, below its long-term average. For Hungary, it expects growth to pick up from 0.4% 2025 to 1.7%, and by 2% in 2027. Inflation is expected to slow, falling from 4.4% last year to 3.8% in 2026 and 3.5% in 2027. The IMF’s previous autumn forecast had projected 2.1% growth for Hungary.