Fitch Ratings says the outcome of the April 12 elections is uncertain, but the next government will face major economic challenges, including weak growth, a large budget deficit, and rising public debt. The next government faces the challenge of rebuilding fiscal policy credibility and strengthening the fiscal framework. The report comes after S&P warned of a possible credit downgrade if energy prices remain elevated for an extended period.

Hungary will not face a sovereign credit rating review before the country’s upcoming elections, giving policymakers and markets a short window of relative calm despite growing concerns about fiscal stability and external risks.

Fitch will closely monitor whether the new government presents a credible fiscal consolidation plan to reduce government debt. Pre-election spending has been higher than expected, making fiscal adjustment more difficult.

Hungary’s GDP has stagnated since 2023, averaging only 0.1% annual growth, far below pre-pandemic levels and the performance of similar BBB-rated peers, due to weak external demand, uncertainty, and structural problems such as low productivity.

Export markets, particularly Germany, and key domestic sectors such as automotive and battery production are underperforming, further weighing on growth. Fitch expects Hungary’s GDP to pick up from 0.4% in 2025 to 2% in 2026, driven by consumption and pre-election fiscal spending, with a potential acceleration to 2.4% in 2027 as investment and exports recover. Both figures are significantly below the government’s targets.

The government’s fiscal measures, including generous pre-election spending, have expanded the budget deficit and could limit the scope for post-election consolidation.

Hungary, however, reduced its primary deficit to 0.1% in 2024 from 3.4% in 2022 through a combination of lower capital expenditure, energy subsidies, and the extension of sectoral special taxes. Fitch projects the deficit to narrow modestly from 5.6% in 2026 to 5% in 2027, remaining above the BBB peer average.

Debt is expected to rise slightly, reaching 75.9% of GDP by 2027, above levels consistent with long-term stabilisation.

The cumulative cost of the fiscal easing measures rolled out ahead of the elections was 0.3% of GDP in 2025, but this is expected to jump to 2.1% in 2026. The costs could be higher than the December estimate, as new measures have been announced since, Fitch said.

In the coming months, Hungary’s credit outlook will depend on geopolitical developments, energy prices, and the credibility of the new government's fiscal plans. Rapid and effective post-election fiscal policy will be crucial to maintain investor confidence and preserve economic stability.

Political uncertainty after the elections could also affect investor confidence, economic growth, and relations with the EU, while geopolitical risks, such as energy price shocks and reliance on Russian energy, remain additional concerns.

Events in the Middle East and the recent depreciation of the forint will limit the scope for monetary policy adjustment. We anticipate another 25 bp cut in 2026, but higher energy prices could shift the direction of monetary policy.

Fitch stressed that it did not incorporate the potential unlocking of frozen EU funds in its macroeconomic and fiscal projections. The Tisza Party has set up a task force to unfreeze suspended EU funds, Magyar said, when asked about the August deadline for projects under the RRF.

Moody’s is due to review Hungary on May 22, followed by Standard & Poor’s on 29 May and Fitch Ratings on 5 June. The timing means the election campaign will unfold without an immediate risk of a sovereign downgrade.

Hungary holds a BBB rating with a negative outlook from both Moody’s and Fitch, two notches above junk. The bigger risk lies with S&P, which already rates the country at BBB-minus with a negative outlook, the lowest investment-grade level. Even a downgrade by S&P would not automatically trigger a widespread sell-off, as many investment mandates require at least two of the three major agencies to maintain investment-grade ratings, Portfolio.hu reported.

In an opinion article on the business website on March 17, former MNB governor Peter Akos Bod warned of the economic risks posed by Hungary’s high exposure to external shocks, stemming from high energy imports, vulnerable public finances, and weaker institutional adaptability.

The sustained rise in energy costs could widen the trade deficit, fuel inflationary pressures, and erode investor confidence in Hungarian debt, which already trades with higher risk premiums than stronger regional peers. Hungary’s structural weaknesses, elevated public debt, narrow fiscal buffers, and limited adaptability of policy institutions increase the risk of a prolonged economic downturn.