Hungary: Tisza’s election win should support economy, but significant fiscal constraints remain
Hungary breaks away from the Orbán era: On 12 April, Péter Magyar’s Tisza party won a landslide victory over Viktor Orbán’s incumbent Fidesz party, securing more than two-thirds of the seats in Parliament on a record voter turnout. The result delivers a clean break from Orbán’s 16-year rule, which had estranged Hungary from the EU, frozen EU funds worth about 10% of domestic GDP, and systematically eroded democratic institutions, the rule of law and investor confidence.
Change in government brings new opportunities as well as challenges: Tisza’s most urgent priority is to unlock the roughly EUR 18 billion in frozen EU funds—EUR 10 billion of which risk expiring irreversibly at the end of August. Ahead of forming a government, Magyar has already held several meetings with Ursula von der Leyen; the unfreeze hinges on legislative reforms and anti-corruption measures. Some of our panelists expect inflows to resume in late 2026 or early 2027. Tight deadlines, however, mean a significant share of the current budget allocation could still be lost.
The shift away from Orbánomics should gradually restore investor confidence, with the post-election forint already rallying to one of its strongest levels in four years. Reduced risk premiums and lower financing costs should help fixed investment recover after roughly six years of decline, the worst performance in the EU.
On the domestic side, Tisza has pledged labor tax cuts, VAT reductions, andcontinued fuel price relief, pension support and household stimulus, boding well for consumer confidence and household spending in turn. The fiscal arithmetic, however, is uncomfortable. The budget deficit hit a record high in March even before the elections, and Tisza is yet to present a comprehensive plan about how it will finance its spending program. With the Iran war pushing up commodity prices and straining public finances, a persistently loose fiscal stance could undermine Hungary’s already fragile fiscal credibility.
The new government is not a panacea, at least in the near term. Hungary has been among the EU’s worst-performing economies for several years, battered by a toxic combination of external shocks, such as the pandemic, the 2022–2023 energy crisis and the Iran war, plus domestic headwinds, including widespread corruption, weak institutions, the erosion of the rule of law and suspended EU fund inflows. The damage is deep, and reversing it will likely take years, not quarters. These shocks have hollowed out the country’s competitiveness and growth prospects relative to regional peers, and some of Tisza’s own policies carry risks: A proposed ban on non-EU guest worker permits from 1 June, for instance, could hurt sectors reliant on imported labor.
Politically, Tisza’s majority gives it ample room to push through institutional reform regarding judicial independence, electoral law and public procurement. But can it govern? The party’s lack of governing experience warrants caution, and its unusually broad support base—having consolidated virtually all of the opposition vote—may prove hard to satisfy when the reality of governing and policy tradeoffs hits home. Failure to deliver on anti-corruption pledges, a key concern for investors and voters alike, could erode Tisza’s popularity and dampen confidence.
Recovery in sight, risks remain: Our panelists expect Hungary’s GDP growth to catch up with the rest of Central and Eastern Europe over the coming years as fixed investment returns to growth after roughly six years of decline. Unlocking EU funds, restoring investor confidence and enacting business-friendly reforms will be pivotal, while the industrial sector—worth almost a quarter of GDP and one of the economy’s most productive—is set to rebound from a prolonged slump and aid merchandise trade. Meanwhile, household spending, one of the few bright spots in recent years, should remain buoyant on improved confidence and continued public stimulus.
Inflation is expected to remain above the European Central Bank’s 2.0% target through 2030, upwardly pressured in the near term by the Iran conflict and in the longer term by rate cuts and the end of the forint’s post-election rally vs the euro. This could potentially delay Hungary’s adoption of the euro, which hinges on fiscal consolidation and disinflation.
Our Consensus is for the fiscal deficit to widen in 2026, partly on the back of pre-election spending, before gradually narrowing toward the EU’s 3.0% threshold, though a return to pre-Covid levels before 2030 looks unlikely given the new administration’s spending ambitions and potential revenue headwinds.
Panelist insight: EIU analysts commented on the policy outlook:
“We do not anticipate a significant change in the direction of economic policy in 2026, in part because a weak fiscal position will limit room for manoeuvre in the new government’s spending plans and reform ambitions. So too will the geopolitical backdrop, given Hungary’s high exposure to imported energy costs and related exchange-rate volatility. Unfreezing blocked EU funds will be a high priority for TISZA and, if achieved in the near term, would provide some modest fiscal space, with a larger impact from 2027.”
On the outlook for economic and fiscal policy, Allianz analysts highlighted:
“Tisza’s announced measures […] are clearly expansionary and should support household incomes and domestic demand. This comes on top of existing pressures from the Iran-driven energy shock, which is already increasing the fiscal cost of subsidies and could add up to 0.7pp of GDP to the deficit. At the same time, improved prospects for unlocking frozen EU funds would ease financing constraints, revive investment and support a more durable recovery, with GDP growth likely to recover to around +1.6% in 2026 from 0.4% in 2025, as the investment cycle begins to turn in H2.”