Trump’s victory is good for Orbán, but not necessarily good for Hungary
PM Orbán appeared to be greatly relieved, and even victorious, on the news of Trump’s reelection for US president. Below we argue that this result will likely raise his personal status significantly, whereas Mr. Trump’s economic and foreign policies are much less likely to favor Hungary.
In domestic politics, the average of October polls still showed Fidesz in the lead of the race among parties, but the newly risen opposition Tisza gathered further support and is now rather close to catching up with them. Fidesz has so far reacted by promising bright prospects for 2025, starting an energetic smear campaign against Tisza’s leader, and initiating an amendment of the election law.
European gas prices have risen significantly in recent weeks, on growing demand as winter is approaching, and on a good amount of uncertainty regarding the prospective availability of Russian gas. In reality, the European gas inventory situation is excellent, and the aforementioned uncertainties have a lot to do with market psychology. News that Austria will not be able to buy Russian gas after mid-November and that Ukraine will not transit Russian gas from January should not be taken too seriously.
The surprisingly weak Q3 GDP data, the details of which will be released only in early December, seems now better explained by September’s monthly data. This most recent weakness of GDP appears to be quite broad based, the reasons including a negative supply shock in agriculture, weak industrial exports, mainly of cars and components, a major setback in fixed investment and construction, and a stalled recovery in consumer demand.
Fiscal adjustment is proceeding faster than is generally believed, and the government is clearly in a position to safely meet this year’s amended deficit target. The draft 2025 budget, which is now in parliament, aims at a further reduction of the deficit, in line with the standing medium-term adjustment program. In official talk, there is lots of reference to new policies to support families and raise locals’ standard of living, but actually, all the related initiatives on this front appear to be quite modest.
The balance of payments still looks good, with all of the current account, the basic balance and the overall balance showing small surpluses in January-September. However, the trade surplus fell in Q3, somewhat unusually at the time of a weak economy. On the positive side, the net factor income deficit also narrowed, on lower interest rates and earnings on inward FDI.
CPI-inflation picked up in October, driven by a temporary base effect, which will affect the numbers in the last two months of 2024 as well. However, this upturn was smaller than expected. We have a question mark about a sharp fall in telephone and internet services, as reported by KSH. But even if we excluded their impact, the headline rate would be the same as, and core inflation would be lower than, predicted by the MNB in the Q3 inflation report.
On November 19, the Monetary Council held the MNB base rate unchanged at 6.5%. The Council was basically satisfied with recent inflation developments, but saw significant risk in the forint’s recent weakening, which it explained by high geopolitical risks, the recent USD appreciation against EUR, and investors’ decreasing appetite for emerging market risk. Decision-makers emphasized that the base rate may remain unchanged for several months if continued negative external conditions require so.
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