The decisive victory of the Tisza Party, led by Péter Magyar, in Hungary‘s general election at the weekend, means that the country is entering a period of political transition – however its economic structure could limit short-term benefits, ING has said.
ING analysts Peter Virovacz and Frantisek Taborsky were commenting after Sunday’s election brought to an end the long-standing leadership of Viktor Orbán and his party, Fidesz, following high voter turnout.
Rebuilding relations
In the short term, the strong mandate reduces political uncertainty and raises expectations for rapid institutional and economic changes, the analysts note, including prioritising rebuilding relations with the European Union. However, they add that this process may take time.
‘While there is widespread expectation that the Magyar government will quickly resolve the EU-fund-related issues, the reality is that it may take longer,’ they commented in a briefing note. ‘Due to allegations of Hungarian spying on EU officials, trust in Hungarian institutions has fallen to a low point. To regain this trust, more than just symbolic measures are needed.
‘The Hungarian budget is also facing pressure to be restructured, given that the macro backdrop on which it was based has changed significantly. So, first, the new government needs to come up with a new macro baseline that can serve as a credible building block for the reshaped budget. The new government also needs to reshape the economy, and while it can start work on that, a structural change can take more than one political term.’
Euro adoption?
There is also discussion around setting a timeline for adopting the euro, which could help improve investor confidence if paired with credible fiscal and institutional reforms.
‘If timed perfectly, this could boost market confidence and give the Tisza party more time to work on the Hungarian economy with some tailwinds,’ the analysts note.
In the near term, however, the focus is expected to remain on stabilising public finances and creating a revised economic strategy.
‘From the market’s perspective, the constitutional majority allows for a smooth transfer of power for the opposition and a faster path to unlocking EU funds, which are the main focus of investors, giving Hungarian assets another reason to extend their rally,’ they add. Read more here.
