Hungary

Growth still severely hampered by the freeze on European funds

Growth is set to remain relatively weak in 2026, but it is expected to improve compared with the previous three years of near economic stagnation. The main cause is the prolonged freeze of more than EUR 20 billion in European funds in response to unrectified institutional and governance issues, which continues to weigh heavily on public investment. Of this amount, nearly EUR 10 billion from the post-Covid recovery fund (RRF – Recovery and Resilience Facility) is due to expire at the end of August 2026. Around EUR 8 billion in cohesion funds is also at stake, with a deadline at the end of 2027, including EUR 2 billion which has been permanently lost as it was not used. In addition, the EU’s low-cost financing program SAFE (“Security Action for Europe”), which is mainly intended for defence spending, could allocate up to EUR 17 billion to Hungary but has yet to be approved. Nevertheless, the pro-European government that came to power in April 2026 is a positive development that could accelerate the gradual and partial release of these funds in the coming months. An agreement was reached in early June with the European Commission to unlock EUR 16.4 billion in previously frozen funds in exchange for commitments on anti-corruption and governance reforms. Private investment will also continue to be hampered by durably high policy rates (6.25% in May 2026), despite a sharp slowdown in inflation (1.8% year-on-year in March 2026), which is currently below the Hungarian central bank’s target (2-4%) for the first time in nearly a decade. However, the conflict in the Middle East, which has pushed Brent prices to around USD 100 since March (around +40%), has limited the prospects for interest-rate cuts in 2026 and is fuelling inflationary risks. Meanwhile, Asian investment will remain a key source of support. Hungary has gradually established itself as one of the main Chinese industrial hubs in Central Europe, particularly in batteries and electric vehicles. BYD relocated its European headquarters from the Netherlands to Budapest in May 2025. Projects by CATL in Debrecen, along with BYD’s investments, should continue to support manufacturing investment in 2026

Exports, which account for nearly 80% of GDP, remain highly concentrated towards Germany and the rest of the euro area, making the Hungarian economy particularly sensitive to weak European demand and to disruptions in global supply chains. The automotive sector alone represents nearly one-third of total exports in a context of strong regional integration with neighbouring countries that are also specialised in this industry (Slovakia, Czechia and Romania). Under the bilateral agreement of July 2025, US tariffs on automobiles were set at 15%

2026 was also marked by parliamentary elections, which supported activity in the first quarter through several household-friendly fiscal measures (tax cuts, energy price caps and exceptional income support measures for households). Private consumption will therefore remain the main growth driver, supported by a still relatively strong labour market, with nominal wage growth of 9.1% year-on-year in March 2026 and an unemployment rate contained at 4.7%

Twin deficits will remain under strong pressure

The budget deficit will remain very high in 2026 and weaker than in 2025 due to Fidesz’s pre-election measures and the very limited fiscal headroom for the incoming TISZA party. Despite its more credible stance on fiscal consolidation, the new government is expected to maintain most household support measures: doubling of family tax allowances, tax exemptions for mothers, a 13th month pension, increases in the minimum wage, and the continuation of energy subsidies. Temporary taxes on banks, telecommunications, and aviation, as well as a rebound in tax revenues driven by stronger consumption will not offset the increase in spending, or else only marginally. Public debt will therefore remain high, with its trajectory largely dependent on the unlocking of European funds. The European Commission already forecast a deficit of 5.2% of GDP in 2026, while TISZA now points to a figure closer to 6.8%. Our estimate lies roughly in between.

The current account balance will deteriorate in 2026 due to persistently subdued European demand, weak overall exports—particularly in the automotive sector—and renewed pressure on energy imports amid persistent tension in the Middle East. However, the services surplus, supported by tourism, road transport and business services, will continue to partially offset the deterioration in goods trade. Hungary will remain exposed to forint volatility, although the arrival of the new government has significantly improved market sentiment and has resulted in strong currency appreciation since the start of the year, from nearly 400 HUF/EUR in March to around 356 in early May. This improvement nonetheless remains fragile: any delay in unlocking European funds or fiscal slippage could quickly reignite currency pressure and external financing costs. The high level of external debt (78% of GDP in 2025) associated with both FDI and public financing, will continue to make Hungary vulnerable to external shocks despite the gradual reduction in the share of public debt denominated in foreign currency (currently around 30%, compared to 50% ten years ago)

Major political turning point with the election of the new TISZA party

TISZA’s landslide victory (centre-right) in the April 2026 parliamentary elections marks the most significant political break in Hungary since Viktor Orbán returned to power in 2010. Péter Magyar’s party won 141 out of 199 seats, compared with 52 for Viktor Orbán’s FIDESZ and 6 for Mi Hazánk (Our Homeland), far exceeding the two-thirds threshold required to amend the Constitution and cardinal laws. This supermajority gives the new government the institutional means to gradually dismantle the parts of the political and institutional architecture built by Fidesz over the past fifteen years that have been most criticized by European institutions. Beyond a simple change of government, the challenge will therefore be to restructure the Hungarian state, notably by tackling corruption and capturing state resources. These include reforming the judicial system, supervisory authorities, public media and public finance oversight mechanisms. However, this transition could quickly generate significant institutional and political tensions. A substantial part of the administration, nominally independent authorities and economic actors remain closely tied to networks built during the Orbán era, which increased the risk of obstruction, conflict and sustained polarization despite TISZA’s large electoral victory. Moreover, TISZA lacks governing experience and is likely to face staffing shortages

At European level, the new government is expected to adopt a markedly more pragmatic and pro-European stance in order to accelerate the release of frozen funds, which has become both an economic and political imperative. Hungary will seek to reduce its isolation with respect to the Union and restore its credibility with international investors after several years of tension with Brussels over the rule of law and the management of public funds. That said, this repositioning will remain restricted by several structural factors, namely strong energy dependence on Russia, a growing weight of Chinese investments in Hungarian industry and the need for TISZA to preserve part of its conservative and sovereigntist electorate. The government will therefore have to keep a delicate balance between European alignment and geopolitical pragmatism.

Last updated: June 2026