Hungary's parliament backs 2025 budget plan, deficit target seen at risk

By Gergely Szakacs

BUDAPEST (Reuters) - Hungary's parliament approved Prime Minister Viktor Orban's 2025 budget on Friday, shrugging off concerns by the Fiscal Council that the government's growth assumptions are too optimistic and the reserves too low to tackle contingencies.

Orban, in power since 2010, has struggled to revive Hungary's economy after last year's downturn following a surge in inflation to more than 25% in the first quarter of 2023, the highest in the European Union.

Hungary's budget deficit has averaged nearly 7% of gross domestic product (GDP) since the COVID-19 pandemic. Orban aims to cut the 2025 shortfall to 3.7% of GDP from a targeted 4.5% this year.

The European Commission sees Hungary's deficit next year at 4.6% of GDP, while Fitch Ratings, which raised its outlook on the country's debt to stable from negative this month due to a reduction in economic imbalances, sees the gap at 4.2%.

"The somewhat higher deficit relative to the government's forecasts reflects our expectation of relatively weaker economic growth and some increase in spending ahead of the parliamentary election in spring 2026," Fitch said.

Hungary's economy dipped back into a technical recession in the third quarter of 2024, while inflation is now seen sharply higher next year due to falls in the forint and tax hikes to cut the deficit -- complicating Orban's 2026 re-election bid.

Hungarian consumer confidence in November hit its lowest point this year. The forint fell sharply and confidence was running well below levels elsewhere in central Europe, a survey compiled by the European Commission showed.

Orban plans to revive the economy with a housing stimulus, higher tax benefits for families, a capital injection for small firms, wage hikes and pension rises - targeting key demographics ahead of what is expected to be a closely-fought election.

"The (Fiscal) Council maintains its view on the risks it has flagged in the budget bill, given that neither the economic environment, nor the budget bill have changed in a way that would have addressed these tensions," it said before the vote.

Moody's cut Hungary's credit rating outlook to negative from stable last month, citing rule-of-law disputes with the EU, which could lead to Budapest losing access to billions of euros in funds, curbing growth and weakening state finances.

(Reporting by Gergely Szakacs; Editing by Gareth Jones)