EME Macro/Strategy: Hungary – budget correction phase not over

Last week, the government announced various corrective measures for the budget, including lower spending measures and higher tax changes. Minister of Finance Varga has indicated that the full budget adjustment will be unveiled in the autumn, presumably ahead of the 20 September deadline, when EU countries need to submit their medium-term fiscal plans to the EU Commission. We expect modest consolidation efforts in 2025E and 2026E, despite the reactivation of the fiscal rules in Europe, because we observe that fiscal policy in Hungary has returned to a highly cyclical pattern, linked to the electoral calendar; and, in 2026E, an intense general election appears likely. In this report, we present two scenarios for the public debt trajectory. Hungary has made important steps forward in its export production capacity, but it is taking significant steps backwards on its foreign policy strategy within the EU. The former is helpful but, in our view, cannot work as a shield against the trend of rising risk premia that the latter imposes.