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The Hungarian budget recorded a significant monthly deficit in September, as one-off payments from previous months were not repeated. This has further worsened the 12-month rolling deficit. We maintain our view that the deficit-to-GDP ratio will end up at around 4.6% in 2025.

The monthly budget deficit was HUF 303.2bn in September, bringing the year-to-date (YTD) general government cash-flow deficit to HUF 3.33tr. This equates to 70% of the full-year target for 2025. At the end of the first half of 2025, when we observed a series of positive budgetary trends, we concluded that it was premature to suggest that this marked the beginning of a trend. We were right, and as one-off revenues (such as dividend income) ceased, the budget began to deteriorate.

The monthly general government balance in September (cash-flow, HUFbn)

Source: Ministry for National Economy, ING

The latest data shows the second-worst monthly balance in September of the 21st century. Though, in all fairness, there is another factor this time: the timing of loss compensation for state-owned utility companies under the utility cost support scheme was different to usual. But this is more than just a small blip. The 12-month cumulative cash-flow budget deficit moved to HUF 4.9tr, which is the highest level since March 2024, showing a trend-like deterioration during the past 12 months.

The 12-month cumulative cash-flow budget deficit (HUFbn)

Source: Ministry for National Economy, ING

We maintain our view that the government's deficit target of 4.1% can be achieved, but only with considerable effort. While the detailed data to be released soon will provide a more nuanced picture on which to base an updated forecast, for now, we expect this year's budget deficit to be around 4.6% of GDP – 0.5ppt higher than the latest official budget target.

Budget performance (year-to-date, HUFbn)

Source: Ministry for National Economy, ING

The main issue for markets regarding fiscal policy in Hungary is that the general election is approaching in spring 2026. Historically, governments were happy to spend excessively in the run-up to elections, regardless of their political leanings.

However, this time we are adopting a more conservative approach, given that the government has already announced a series of targeted measures for the remainder of 2025 and 2026. This extensive package includes changes to personal income tax for mothers, bonuses for the armed forces, a lump sum for pensioners, wage settlements, and lending programmes, to name a few.

Although it sounds like a lot, these measures are on a different scale to those announced in 2021/22. Four years ago, the announced measures were unbudgeted and equalled 3.3% of GDP. This time, the measures equate to spending of around 2.0-2.5% of GDP, with only a small proportion being unbudgeted and impacting 2026. This year's deficit slippage is mainly due to insufficient corporate-related revenues. We forecast a deficit-to-GDP ratio of 4.6% in 2025 and 4.5% in 2026. If the stronger HUF holds, the debt-to-GDP ratio will rise only marginally. Based on the latest developments, this 'if' is becoming more significant, though.

Furthermore, we anticipate more risks to the budget arising from economic activity, particularly in view of the possibility of disappointing performance in the third quarter. Lastly, if the pre-election political situation becomes more heated for the incumbent party, there could be an even larger slippage than we currently anticipate, and the budget deficit could deteriorate further due to more targeted measures.

Nevertheless, we believe it is highly likely that the government will reduce the deficit to below last year's figure of 5.0% of GDP and will aim to reduce it further next year, even if only by a small amount.

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