CEE: Hungary’s ambitious 2027 budget plan

On the radar

• Today, Hungarian central bank holds a rate setting meeting.
• Poland will show industrial output growth for September alongside producer prices, wage and employment growth.
• In Slovakia, we expect to see current account data and unemployment rate release.

Economic developments

Hungary’s presented an ambitious 2027 budget proposal that seeks a reduction in the fiscal deficit to 4.9% of GDP from above 7% this year. The target is somewhat more ambitious than our previous expectation of 5.0–5.5% of GDP, although market expectations have recently shifted towards a deficit below 5%. The government plans to create additional fiscal space through adjustments to existing measures, including the personal income tax exemption for mothers and the Home Start housing program, alongside a broader restructuring of the tax system that includes the introduction of a wealth tax. At the same time, sector-specific windfall taxes, which had previously been expected to be gradually phased out, are now set to be expanded in 2027. This raises concerns as these levies have already contributed to significant distortions and uncertainty for businesses. While some of the proposed fiscal savings appear credible, particularly lower interest expenditure and the expiration of one-off spending associated with the 2026 elections, the overall consolidation strategy remains subject to considerable implementation risks. In particular, the government expects to generate savings equivalent to 1.5 percentage points of GDP by reducing unnecessary public expenditure and tackling corruption. Detailed presentation will be held at the Ministry of Finance today. We expect to receive additional information regarding the extent of budget’s strong assumptions. Further, guidance on the fiscal trajectory beyond 2027 should be shown, that will be particularly important from the perspective of euro adoption and moving toward Maastricht criteria of deficit no higher than 3% of GDP.

Market movements

The announcement of the deficit target sent the Hungarian forint to a four-week high against the euro (EURHUF at 362). A stronger forint is an important factor in the central bank’s monetary policy decisions. Although we do not expect any change in the key policy rate at today’s meeting, over a longer horizon, a further decline in EURHUF would favor monetary easing, which we expect to resume in the first half of 2027. Hungarian bonds have rallied in recent weeks amid growing expectations that the government would target a deficit below 5% of GDP. It seems that this positive news has already been priced in, as long-term yields did not decline in response to the 2027 budget announcement. In fact, 10Y yields increased marginally across the region on Monday. Meanwhile, Romania’s parliament is expected to back a minority government led by diplomat Luca Niculescu, bringing an end to a six-month political impasse.

Download The Full CEE Macro Daily