Tisza has taken over in a normal way, with no disruptions
Tisza had set up its government cabinet and taken over the administration by early May, which represents record high speed historically. No extraordinary events or disruptions occurred, despite earlier widespread fears that Fidesz could hesitate to transfer power.
However, Tisza’s takeover has not been completed yet, as key positions such as the President of the Republic, the Constitutional Court and other important institutions are still held by Fidesz appointees, who could efficiently hamper and even block the new government’s intended ambitious reform program. On this, PM Magyar has taken a decided stand, expecting the officials in question to resign by end-May, or they will be removed by the force of Tisza’s constitutional majority in parliament.
In terms of popular standing, Tisza is enjoying a honeymoon period. Its support base has shot up dramatically since the election. PM Magyar opened his term in his usual style of creating lots of publicity, using powerful vote-getting actions such as a major open-air takeover party on the day he was sworn in, putting the EU’s banner back on the forefront of the parliament building, and showing internet viewers the outgoing government’s luxurious office buildings, which were built under the economic slump of the Covid era and the years of "war emergency".
This week, another EU mission has come to Budapest, to continue discussions on the release of EU funds for Hungary. Mr. Magyar still expects to travel to Brussels next week, to strike a political deal with Mme von der Leyen on the conditions and the utilization of funds under the RRF facility.
Mr. Magyar is also making efforts in regional diplomacy, having traveled to Warsaw and then to Vienna right at the start, with a view to reviving cooperation within the Visegrád-4 group, and forming a strong regional bloc by adding Austria, as well. Positively, there seems to be a great deal of receptivity among his negotiating partners.
Regarding economic policy, the plan is to review the state of affairs, and to hand in to parliament an amendment of this year’s budget by September. Until then, the official expectation is to make no change to the existing scheme of energy subsidies and administrative price controls. We see three problems in this area: the questionable sustainability of the current level of "protected" fuel prices, the considerable risk that global energy prices may rise further, and the official expectation that this year’s fiscal deficit could be substantially higher than even the several-times-amended target if no further policy action takes place.
CPI-inflation continued to rise slowly, from a very low level, in April. In addition to energy prices, the key risk here stems from the most recent extraordinary speed of wage growth, thanks to the election campaign. Recent good news has been a moderate acceleration of GDP growth in Q1, in which some long-awaited strengthening of industrial output also played a role, in combination with buoyant consumer demand. Unfortunately, the latter appears to have been no solution to the developing balance of payments problem, as the net financing balance is now moving rapidly into deficit.
The key endeavor of the MNB is to suppress inflation by keeping the forint strong. However, most recently, the Bank seems to have concluded that the forint had appreciated too much, posing a significant threat to growth, the BOP and the government budget. First the governor intervened verbally, and then the implicit EUR-liquidity swap rate was reduced.
This was followed by speculation that the MNB might reduce the base rate soon. Well, maybe, but we do not think it is coming immediately, as it is not the style of the current MNB management to loosen significantly in the face of rising inflation, as well as a great deal of uncertainty regarding both global conditions and the domestic fiscal policy framework.
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