Hungary’s Growth Target to Elude Orban Again in Run-Up to Tight Election
(Bloomberg) -- Hungary is set to miss a 4% economic growth target for a second year, according to the latest projections, limiting Prime Minister Viktor Orban’s spending room before what’s expected to be the tightest election in 16 years.
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The economy unexpectedly contracted in the second quarter, with the government blaming the weak performance on struggling industrial exports to western Europe, mainly Germany. Under Orban, the nation has also become increasingly reliant on electric-vehicle battery demand, and the slowdown in that sector has had an out-sized impact on Hungary.
Gross domestic product may expand from 3.2% to 3.5% next year, Finance Minister Mihaly Varga said in an Inforadio interview late Thursday. That compares with a 4.1% projection in Hungary’s latest annual convergence report to the European Union.
“It’s clear that industry, manufacturing and construction are recovering far slower than we thought,” Varga said, according to the interview’s transcript. “Cautious restraint is warranted.”
The shift comes as the administration races to boost the economy before a general election scheduled for early 2026. It’s likely to pit Orban’s Fidesz — which has ruled Hungary uninterruptedly since 2010 — against Peter Magyar’s rising Tisza party.
Magyar blindsided Orban by outperforming in EU and local elections in June and placing a close second in cities that until recently were considered uncontested ruling-party strongholds. General discontent about the state of the economy has added to political scandals and long-standing corruption concerns to give an opening to a potential alternative.
The government has already gradually downgraded the 4% forecast for economic growth this year, with the minister saying it’s now projected to be at 1.7% to 2%.
The government is working to lower the budget deficit to the targeted 4.5% and then to 3.7% next year and 2.9% in 2026. After successive misses, it’s also under pressure from the EU after the European Commission included Hungary among a group of states facing its excessive deficit procedure, which requires remedial action to avert potential fines.
Hungary posted a record year-to-date cash-flow based shortfall in the first half, which was narrowed to 2.44 trillion forint ($6.9 billion) after the biggest monthly surplus in two years in July. That followed the government’s announcement of tax hikes and spending cuts that’s estimated to save 1 trillion forint.
“This is good news, a good sign,” Varga said about the July budget data. “These measures are helping meet the deficit goal more easily.”
--With assistance from Veronika Gulyas.
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