Hungary’s fiscal hole will hold back the recovery

The Orbán administration’s pre-election spending splurge is likely to push the Hungarian government’s budget deficit towards 6.5% of GDP (on an ESA basis) by the end of this year. Our judgement is that Tisza will aim to bring the deficit down to 3%. But renewed EU fund inflows will only help in part. Multi-year fiscal austerity will be needed, which will come at the cost of a slower recovery. Signs of slippage could ultimately take some of the gloss off the post-election market rally.