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JPM See a Fidesz Victory is the Baseline Scenario

HUNGARY
  • Hungary’s most contested election in a decade. Baseline scenario is Fidesz wins with simple majority, but a surprise victory by the opposition cannot be ruled out.
  • The recent steady 5-6% lead of Fidesz over the opposition alliance suggests PM Orbán’s Fidesz is most likely to win, but most probably with a simple majority only (the supermajority is possible, just less likely).
  • If Fidesz wins: continuity, predictability, political room to fix the budget. The key priority, in what concerns markets, would be in our view to fix the fiscal picture. The budget is in a really bad situation, after two large deficits in 2020 and 2021, the authorities extended an expansionary policy into 2022, with many giveaways just ahead of election. We believe that a new Fidesz Government is very aware that such imbalances, though important for re-election, are becoming a source of weakness which needs amending. The macro picture is strong, so we see political scope for budget consolidation from 2H22.
  • If the opposition wins: more uncertainty, quicker EU funds. A victory by the opposition would be a watershed moment in Hungarian politics, but what would follow is rather uncertain: it could go bad, but it could also go well. We could be getting a highly unstable Government solution, one which would have to focus firstly on political survival rather than a reform agenda, including the fixing of the budget. However, the alliance has so far outlived and outperformed most of the preliminary obituaries. Failing would come at the price of snap elections and a return to the opposition benches. Very importantly, a new Government would have probably better relationship with the EU, which would think would result not only in the quicker unlocking of NexGen funding, but also the removal of threat of freezing of the standard cohesion funds.
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