Hungary-EU Relations to Improve under the New Gov't

In its assessment of the current situation in Hungary, presented in London on Friday, Moody’s Ratings published an overall assessment stating that the affirmed "Baa2" rating is supported by the diversified Hungarian economy, which is delivering moderate growth, as well as Moody's expectation that relations between Hungary and the EU will improve under the new Hungarian government.

The document states that real GDP grew by just 0.5% in 2025, marking the third consecutive year of near-stagnation. Growth was constrained by a weak external environment – most notably a prolonged slowdown in Germany (Aaa stable), Hungary's largest trading partner – and a significant reduction in public investment against the backdrop of blocked EU funds.

The outlook for 2026 has also slightly deteriorated, primarily reflecting spillovers from the escalation of the war in the Middle East through higher global energy prices and weaker growth in key trading partners. Moody’s has lowered its growth forecasts to 1.9% for 2026 and 2.2% in 2027, from its earlier projection of 2.3% growth in both years. “Private consumption is supported by pre-election fiscal easing, and we expect a gradual recovery in investment growth due to improved sentiment and EU funds inflows from late 2026. While we expect exports to strengthen, their high import content will limit the growth contribution of net external demand,” the ratings agency states.

It adds that the fiscal deficit narrowed to 4.7% of GDP in 2025, “but we expect it to widen again to at least 5.2% in 2026, reflecting pre-election spending by the previous government. In addition, in response to the Middle East conflict, the previous government reintroduced statutory caps on retail fuel prices, complemented by cuts in fuel excise taxes to the EU minimum. These measures are open-ended, adding to underlying spending pressures. We expect gradual fiscal consolidation to resume under the new government, though the path remains uncertain, as it has not yet presented a comprehensive fiscal plan and has signaled it will first conduct a fiscal audit before setting out detailed consolidation measures. Given our expectation of continued high fiscal deficits and a weaker growth recovery, we project a further rise in the debt burden to 76.3% of GDP this year and 77.1% in 2027.”