The Hungarian government announced on June 5 it will raise the general reserves in next year's budget by 50% to provide a buffer for potential negative implications from a slowdown in the eurozone.

Leaked reports of PM Viktor Orban's weekend speech at an informal gathering suggests the cabinet is bracing for a possible crisis in the country's main export markets and making preparations for the negative impacts of tighter monetary policies around the globe.

Finance Minister Mihaly Varga poured cold water on investors late last month when he told the Bloomberg newswire that those expecting fiscal stimulus from the newly re-elected government would have to wait.

Varga said that due to recent economic turmoil globally and the start of monetary tightening in the US, the cabinet has shifted its focus to reducing the budget deficit and state debt, which is one of the largest in the EU’s eastern bloc. This marks an apparent u-turn in the government's strategy; only a month ago, Varga had spoken of the need to bolster economic growth.

At the informal meeting of right-wing intellectuals over the weekend, Orban outlined his vision of an emerging financial crisis in Europe, sources told opposition media. To support his view, he cited the soaring state debt in France, the US tariffs on European products and the end of cheap money.

“We may be stuck between Trump and Putin”, he said, referring to the negative impacts of the protectionist measures by Washington on the side and the economic impacts from sanctions against Russia on the other. Orban made clear to his cabinet members not to expect additional funding for their ministries, sources said, adding that he did not speak about austerity measures but rather the need to “tighten our belts”.

“The 3% deficit target is carved in stone,” Orban stressed. Analysts say that the thing Orban dreads most is the idea of Hungary falling into an excessive deficit procedure again, which would bring about the close monitoring of Brussels.

The European Commission in a recent report warned Hungary for breaching convergence rules, namely the requirement to bring its budget deficit closer to the medium-term target, and called on Budapest to implement a fiscal adjustment of 1.5% of the GDP.

During his weekly press conference, Gergely Gulyas, the newly appointed head of the Prime Minister's Office, said Hungary's outlook is good and the fundamentals for growth stable but said that “signs of crisis were showing in the European economy, especially in the eurozone”. The 4.1% growth target for 2019 can be achieved if there is no crisis Europe, he added.

Several countries in the eurozone are indebted and many do not meet the Maastricht criteria. The unfolding trade war with the US primarily impacts Germany, but it also indirectly impacts Hungary, Gulyas argued. He called the budget draft “conservative” and said that its deficit target was 1.8% of GDP, mainly arising from state support for investments and from co-payments to EU-funded projects.

To fend off risks, the government has decided to raise general reserves. The draft budget allocates HUF4 trillion (€12.53bn) for investments with a view to boosting the economy.

The budget is due to be tabled to the parliament on June 13, with a final vote on the draft expected on July 20.