Shift In Power Opens A New Chapter For Hungary

A shift in power in Hungary in mid-April has raised expectations for change, but the new government faces limited room for manoeuvre. Change will take time, and the question remains whether Hungary can capitalise on the positive momentum to change direction. Our Q&A explainer addresses the key questions around Hungary’s political shift.

A new perception

Parliamentary elections were held in Hungary on 12 April 2026, resulting in a change of government. After 16 consecutive years in power, Viktor Orbán's Fidesz party lost the race to lead the country. An era had undoubtedly come to an end.

The shift is so profound that many Hungarians may feel they are living in a different country. Investors, too, are behaving as if Hungary were a newly emerging member of the European community, rather than a country with a history spanning more than a millennium.

How much truth is there to this perception?

Based on the latest consumer confidence survey, it is clear that people believe it. Our non-representative scan suggests that corporates are tougher nuts to crack. However, the vibe has clearly shifted, and it's felt in every area.

Honeymoon phase

One of the most important factors contributing to the current positive mood is effective communication. The newly inaugurated Hungarian government has convinced foreign investors and Hungarian households that the country's economic situation will improve. To this end, they have set economic goals that were not previously a part of the political agenda.

One such goal is a commitment to closer integration with the European Union. This includes a commitment to introducing the euro in the near future. So far, efforts to maintain this positive mood have been remarkably successful, resulting in a dramatic strengthening of the forint and a surge in the forward-looking component of the confidence index to record highs.

How long can this honeymoon last?

The government led by Péter Magyar is seizing every opportunity to maintain positive chatter at the local and global levels. We have clearly entered a new era of political making ('absolute cinema in politics'). Everyone will enjoy the show as long as the trust placed in them is not misused, and we are expecting a long honeymoon period.

EU funds

The question is how feasible these plans are. While market expectations certainly have a self-fulfilling power to a certain extent, improving the real economy is easier said than done. The first step in this process would be the disbursement of EU funds. The most important task ahead of the Hungarian government is to secure the €9.5bn in RRF funds, for which negotiations have already begun, but the end-of-August deadline is fast approaching. Full access to the Cohesion Fund would provide an additional €7bn, and the SAFE could deliver a further €16bn to Hungary. Both funds will be available until the end of 2030.

Can Hungary secure the bulk of available EU funds?

Anecdotal evidence suggests Hungary could come close, with up to 80% of RRF funds potentially unlocked. The longer time horizon also increases the likelihood of near-full utilisation of Cohesion Funds and SAFE. In the short term, the main effect would be to ease financing pressures, while the real economy is likely to see most of the benefits from 2028 onwards.

Financial situation

There is no doubt that budgetary obstacles will be the biggest constraint in the coming period, even if rescuing the RRF funds is successful. Based on April statistics, the budget deficit stands at 91% of the full-year plan, which is considered high even by historical standards. As the Hungarian government has set the adoption of the euro as a goal, it must meet all the institutional and Maastricht criteria.

In our view, simplifying the complex outlook means that the sustainable achievement of price stability and the normalisation of the fiscal situation offer a very good chance of meeting all the criteria for adopting the euro.

Can we expect austerity measures to restore fiscal stability?

We think that achieving price stability would be more difficult than normalising the fiscal situation. The savings on the expenditure side and reducing debt service cost will do the heavy lifting, while cyclical factors will help too. Therefore, we believe that fiscal goals can be achieved by 2030 without classic austerity measures.

Hungarian growth

In terms of GDP growth, trends in the automotive industry will continue to dominate the outlook for economic activity. A shift in the economic structure may begin over the next four years, but it will take one or two additional political terms for the reshaping to be complete. Therefore, in the short term, the conditions necessary for growth will not change. Hungary remains a small, open economy that is heavily dependent on global demand for vehicles. To achieve a better balance, the government is committed to increasing general productivity and focusing on high-value sectors in its investment policy.

Which sectors will benefit most from the upcoming retooling?

We have identified some key areas. The agriculture and food industries may receive significant attention, as these are considered prestigious sectors that can undergo a Polish-style shift towards full vertical integration and higher value-added production. The real estate sector and construction need supply drivers rather than demand boosters, and the conditions are right to make this happen. The energy, infrastructure and logistics sectors will also undergo a complete change of perspective towards greater sustainability.

Foreign direct investments

In recent years, the majority of investments flowing into Hungary have come from Asia. This is the result of the foreign economic policies pursued by the previous political leadership. However, a major shift has taken place following the April elections. The new government has repeatedly emphasised that, while it does not wish to sever the international ties established in the past, it intends to shift its focus towards Europe. In practical terms, new investments from Asia, especially in the automotive sector, may receive less public financial support, though existing relationships will not be affected.

What will the most important policy change be?

Environmental regulations, in particular, are expected to be strictly enforced for both Western companies and large corporations from the East, and with new foreign direct investment (FDI), the focus could shift towards generating more value rather than simply targeting job creation.

Forint appreciation

Despite all the challenges, we believe that the most significant and shocking issue for an export-oriented economic structure is the substantial appreciation of the Hungarian forint. Despite geopolitical issues, the HUF has strengthened by 11-12% since mid-March. Over the past two years, it has appreciated by around 15%, which would breach the ERM II volatility criteria.

Unsurprisingly, after years of significant weakening of the HUF, economic actors were not prepared for such a dramatic shift. Investors around the world now view Hungary as a quasi-eurozone country rather than a dumpster fire.

Will the forint continue to strengthen?

As long as interest in the country remains high, there is a greater chance of further strengthening. However, both the central bank and the government are aware that such strong real appreciation of the HUF would have many negative consequences. We believe policymakers will aim for FX stability around an estimated fair value level. This could be 360-370 in EUR/HUF.

Potential future path

Overall, it can be said that Hungary is moving towards closer integration with the European Union, a process which we expect will continue. While this will have positive consequences, such as interest rate and yield convergence, as well as increased capital inflow from Europe, it will not resolve all fundamental constraints.

Hungary’s economy remains heavily reliant on external demand, while adverse demographic trends continue to weigh on potential growth. Breaking this pattern will require a sustained focus on competitiveness, productivity and higher value-added activity. Having heard these slogans for 16 years with little measurable improvement, the real test for the new government will be to finally turn rhetoric into measurable results.