Can Hungary's new government fix an economy in crisis?

Hungary’s incoming government faces a high-stakes economic balancing act as markets rise on expectations of reform, eurozone ambitions and potential EU fund releases, while underlying structural weaknesses remain severe.

Investors rallied into Hungarian assets after the landslide victory of Péter Magyar’s Tisza Party on Sunday, sending the Budapest stock index up nearly 5% by Monday’s close.

The Hungarian forint also strengthened sharply against the euro, reaching levels not seen since February 2022.

By Wednesday, midday, the exchange rate stood at just over 364 HUF per euro following the initial market reaction. The rate had been above 377 before Viktor Orbán conceded defeat on Sunday evening.

Ten-year government bond yields dropped from 7.52% to 6.21% by midweek, reflecting expectations of improved fiscal credibility and a lower political risk premium.

Oxford Economics, a global economic consultancy, said the historical win alone "will be insufficient to extend it unless backed by firm action" but added that the election outcome is "modestly growth-supportive" for Hungary's economic outlook.

Moody's said in a statement that Peter Magyar's incoming pro-EU government will be credit positive for Hungary, citing the country's improved relationship with the EU, Reuters reported.

The Tisza Party's two-thirds majority in parliament is expected to make for a smoother policy transition than a narrower mandate would have allowed.

Analysts warn, however, that significant challenges remain, including weak growth, a high fiscal deficit, low productivity, reduced public investment and competitiveness pressures linked to rapid wage increases relative to Western Europe.

A key expected driver of growth is the release of previously frozen EU funds, which could unlock billions of euros in investment across construction, energy and transport.

EU funds seen as key growth driver

Zsolt Darvas, senior fellow at Bruegel, said the reaction reflects investor optimism over the incoming government’s policy direction.

While a detailed government programme has yet to emerge, Prime Minister-elect Péter Magyar repeated his plans to reinvigorate the Hungarian economy at a press conference on Monday, including unlocking EU funds, implementing anti-corruption reforms and restoring rule-of-law institutions to revive growth and investor confidence.

The party has campaigned on a pledge to press the reset button on the economy and is relying heavily on the release of €17 billion in EU funds frozen over corruption and rule-of-law concerns under Orbán.

Magyar, whose new government could take power in the first week of May, said on Monday that he had a four-point plan for gaining access to EU funds for Hungary and is already in active negotiations with European Commission President Ursula von der Leyen.

He has made unlocking these funds central to his economic programme, aiming to finance public investment and support small and medium-sized enterprises.

Oxford Economics estimates that even a partial and gradual release of EU funds could generate a significant investment impulse over the coming years.

“We think that unlocking the so-called structural funds alone could add 0.5–0.7 percentage points to annual GDP growth over 2027–2030,” the analysts said.

Tisza has also proposed a more progressive tax system, including potential levies on high incomes and wealth, while maintaining a commitment to fiscal discipline.

Its economic programme, described as the “Hungarian New Deal,” prioritises large-scale public and private investment in infrastructure and modernisation, alongside a more predictable policy environment aligned with European standards.

Magyar has also pledged to introduce the euro by 2030, a long-standing demand rejected by previous governments.

Fiscal pressures limit policy space

Darvas said the most urgent reforms include revising “the country’s budget plans, meeting the conditions required to unlock EU funds, and developing a strategy to support technological convergence”.

Hungary’s economy grew by 0.3% in 2025, according to national statistics, but overall growth remains weak. At the same time, the fiscal deficit is expected to approach 6% of GDP, leaving limited room for expansionary policies.

“Some degree of fiscal consolidation will be necessary, potentially acting as a drag on domestic demand in the near term,” according to Oxford Economics.

Analysts also question the feasibility of planned tax cuts, describing them as “unlikely to be fulfilled given the challenging starting point of public finances inherited from the outgoing administration”.

However, the party also proposes a wealth tax on high-net-worth individuals, expected to raise over 0.1% of GDP. Darvas noted that “consumption taxes are very high, disproportionately burdening low-income households”.

Hungary remains under an EU excessive deficit procedure (EDP), with the deficit already reaching around half of the planned full-year shortfall by early 2026, partly due to pre-election spending.

Energy dependency and structural challenges

This change in government comes amid a looming energy crisis for Europe, with Hungary importing four-fifths of its oil and two-thirds of its gas demand.

According to Péter Ákos Bod, former governor of the Hungarian National Bank and professor at Corvinus University of Budapest, price-control measures introduced by the Orbán government — aimed at keeping energy prices artificially low through subsidies and price caps — could further complicate fiscal repair.

Bod expects that “for the coming months or even a year, global energy prices would remain higher than before Hormuz”.

This puts the Tisza government in a difficult position: further subsidisation would strain the budget, while removing subsidies could weaken growth.

In Bod’s view, the current system “does not support long-term thinking on energy efficiency," adding that “energy saving should be more strongly incentivised than energy consumption”.

Economists broadly agree that Hungary needs a structural shift towards higher productivity growth.

“A sustained rebound in economic growth is essential to strengthen budget revenues and to support efforts to reduce relative poverty,” Darvas said.

He added that the economy remains heavily dependent on low-value-added assembly operations run by multinational firms, with limited innovation and constrained SME growth.

Bod criticised the reliance on large-scale foreign battery and manufacturing investments, including CATL’s plant in Debrecen and Samsung SDI’s facility in Göd.

He argued these projects create environmental pressures and may not align with Hungary’s long-term competitiveness needs.

Instead, he called for stronger support for SMEs and domestic value creation, noting that Hungary’s historical advantage of abundant skilled labour is weakening as the country approaches full employment.

“This model belongs to the past,” he said.

SMEs, competitiveness and state reform

He argued that future growth should come from SMEs moving up the value chain:

“If dynamism returns to small and medium-sized businesses that can be part of the value chain and if they move up the value chain or add more services and higher value added, that would be the only way out of the current stagnation.”

Bod added that SMEs need better access to markets, training, language skills and digital capabilities, rather than focusing on distant trade expansion.

Real competition, he argued, would immediately unlock productivity: “an equal playing field would immediately release the energies of medium-sized companies”.

He also described the state as oversized and inefficient, arguing it should be “reinvented”.

Darvas adds that in 2024, Hungarian general public services spending (excluding key social sectors) was 10% of GDP — roughly twice the level of other Central European countries.

Euro adoption outlook and political risks

Once immediate fiscal adjustments are made, Hungary is expected to revisit euro adoption.

In this scenario, prime minister-elect Péter Magyar has revived the prospect of euro entry within 4–5 years, suggesting adoption could occur by 2030 or 2031, subject to fiscal review.

Darvas said that “Tisza’s commitment to euro-area entry could significantly reduce Hungary’s risk premium and provide a credible inflation anchor”.

This would be particularly important given “Hungary’s negative record of the highest inflation rate — 26% — in early 2023 following the energy price shock," he added.

“The road ahead for Tisza will undoubtedly be difficult,” Darvas said. Much will depend on the final government programme and implementation speed.

Commenting on the challenges ahead of the new government, Oxford Economics added that risks remain due to the party’s inexperience and internal diversity, “combining technocratic reformers with more politically driven factions," with many members lacking governing experience.

It remains to be seen whether the landslide victory of former Orbán ally Péter Magyar marks the first of many surprises from the Tisza Party.