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Apr 18, 2018 - Zoltán Kovács

Another Orbán Government means economic stability and growth and that makes markets happy

If you had a chance to look at the market reaction last week, it seems they’re pleased to see Prime Minister Orbán elected to another term in Hungary.

Following the April 8 elections, Hungarian stocks jumped and Fitch Ratings applauded the third consecutive term for Prime Minister Orbán. The fiscal deficit is predicted to come in at 2.4 percent of GDP this year, and economic growth is expected to exceed 4 percent. The ruling alliance’s sweeping win will ensure economic policy continuity, reported Fitch Ratings, one of the ‘big three’ credit rating agencies. The agency added that this will enable continued growth and made note of some risks including macroeconomic imbalances emerging as a result of rising wages and housing prices.

“We believe that the Central Bank will only raise interest rates once inflation is firmly in the upper end of its target of 3 percent +/-1pp, which is not yet the case,” said Fitch Ratings.

The Budapest Stock Exchange's main index rose by 1.2 percent early in the day on the Monday following the elections and stayed in positive territory all day; outperforming other Central European markets. “The risk (of an opposition victory leading to uncertainty) is out, the establishment has stabilized,” said a Budapest-based fixed-income trader to CNBC. The increase was driven by blue-chip companies, including oil group MOL and OTP Bank.

This election victory means unprecedented stability for the economy, Minister for National Economy Mihály Varga said last week. The minister emphasized that voters handed the government another mandate to continue growth-friendly economic policy based on tax cuts, wage increases and sound financial management.

Public finances have also remained stable and the low fiscal deficit translates into real benefits, measurable in forints, said Minister of State for Public Finances Péter Benő Banai last week. Banai explained that due to the fact that the government has kept the fiscal deficit under the 3 percent GDP threshold for years, the state spends 600 billion HUF (1.9 billion EUR) less on debt financing than at the beginning of the decade. Investors could buy Hungarian government bonds at lower prices, he said, adding that this will create room for additional family allowances, wage increases and investments.