After invalid referendum, analysts eye fiscal policy

Although noting that the migrant crisis has increased support for Fidesz, Nomura analysts describe the Sunday poll as “something of a surprise given the populism and campaign strength of [Prime Minister Viktor] Orbán and the Fidesz machine.”

Nomura analysts see political risks in potential future changes in Fidesz’s support, and are concerned that the government “has kept fiscal policy ‘too’ tight in order to keep central government debt levels stable at around 75% of GDP, but has made little progress in reducing them for the political capital lost through wage freezes for the public sector.”

Economic policy-wise, analysts say “there is likely little the government can do except attempt to streamline structural fund absorption and loosen fiscal policy slightly next year (more than currently in the early budget adopted so far).”

“Monetary policy, as such, is likely to be the key focus and so further loosening of monetary conditions (as already described around BUBOR’s framework) towards the 2018 election seems a likely course,” Nomura analysts add.

Noting that Orbán appears to understand the threat from the opposition Jobbik on the right, the Nomura analysis notes that the prime minister “has immediately appropriated one of their policies in recommending a constitutional amendment to give Hungarian law primacy over EU law in matters of immigration.” Nomura sees that “further nationalism and a realignment of domestic policies towards Jobbik’s platform are likely to be the key result going forward.”

Nomura concludes that the referendum result probably means an early election before May 2018 is now largely impossible.