Tim Gosling in Prague -

With Hungary still waiting for counting to finish to confirm whether or not the ruling Fidesz party will enjoy another constitutional majority, Prime Minister Viktor Orban claimed on April 7 that he has been handed a mandate to continue with his controversial economic policies. That's likely bad news for the banks and utilities, although some analysts expect him to plough a more conciliatory course in order to keep the recovery on track.

As expected, the April 6 election brought a clear victory for Fidesz, handing it around 44% of the vote. However, that leaves open the question of whether the centre-right party can retain its two-thirds supermajority in parliament. The numbers are so close that the answer is not likely for several days. Estimates suggest Fidesz has won 132-134 of the 199 seats in the lower house, depending on the results in certain close-run districts. 

The higher end of that scale would hand the government another constitutional majority, such as it has held since 2010. That has allowed it to ram through numerous changes to the country's "fundamental law" as its called - such as changing legislation on the electoral or judicial systems - and highly controversial economic policy. 

The lower end of the scale would see it forced to rely on other parties to effect constitutional changes; that would likely involve the radical right-wing Jobbik, denoting a step further into nationalism for the government. The count of 2,000 overseas votes in the race for a district in south Budapest is due on April 12, and could make the difference.

Broad future?

Whichever way that count goes, Fidesz clearly won a sweeping victory, and Orban insisted during an international press conference that it gives the party a mandate to continue its work. With a wary eye on Jobbik's surge to over 20% of the vote, the PM stated that voters had rejected hatred and leaving the EU, claiming that they have called for a new public administration system, new economic policies and governance by a people's party.

Fidesz made much of the recent Eurozone-led economic recovery during the election campaign, and Orban reiterated that the results of the past year or so are not temporary, and that the economy will continue to grow thanks to much-debated policies that voters have now endorsed. Hungary will be a "forerunner in the region", and stands on the cusp of a great era with a "broad future," he said, according to a government statement.

However, that will likely depend on Fidesz's ability to revive bank lending and investment. Turning to the battered banks, the PM said it is justified to maintain the banking tax. "We are glad to see that the financial institutions have incorporated the banking tax into their operation and are again making profits," he said. He also hinted that the planned new scheme on foreign currency debt will not go lightly on lenders, claiming that keeping the banks within the system of fair burden-sharing is also the right move.  

However, many analysts suggest the government can't escape the fact that it may need to ease its handling of foreign investors in particular, if it is to maintain the rate of growth and keep a lid on fiscal accounts. "The long-awaited solution on the FX mortgage issue is unlikely to be a radical one including loan conversions in large sizes," suggest analysts at Citigroup. "We expect smoothed impacts but with most of the burden to remain on banks."

BNP Paribas agrees, saying it expects government policy to become more “orthodox” and less confrontational. “The key to maintaining a robust investment climate will be policy predictability, which has proved to be a significant obstacle in 2010-2014,” the analysts note. 

"It still remains to be seen if the government changes its tone to be more market friendly," note Gergely Gabler and Orsolya Nyeste at Erste Bank. "However, big social distribution systems (pension, healthcare) are not expected to be modified. Further steps in hot topics such as the energy price cuts and the FX mortgage loan relief program remains to be seen. We see 10-year yields to increase to 6.00% until this year-end, and the forint could appreciate..."

However, William Jackson at Capital Economics is less certain. In the near term, Orbán’s new mandate is likely to see a strengthening economic recovery, he suggests, but dropping investment and a continued cap on lending will only exasperate the need for structural reform. “The bigger picture is that there are unlikely to be any reforms to address the structural problems that emerged during Orban’s previous term," he writes. "As such, over a medium-term horizon, we think the Hungarian economy is likely to remain a regional laggard.”