After invalid referendum, analysts eye fiscal policy

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With last Sunday始s Hungarian referendum on EU refugee quota plans garnering only approximately 40% of cast and valid votes, governing party Fidesz could come under political pressure, with potential risks to economic and fiscal policy, according to an analysis Japan始s Nomura sent to the Budapest Business Journal yesterday.

Although noting that the migrant crisis has increased support for Fidesz, Nomura analysts describe the Sunday poll as 鈥渟omething of a surprise given the populism and campaign strength of [Prime Minister Viktor] Orb谩n and the Fidesz machine.鈥

Nomura analysts see political risks in potential future changes in Fidesz鈥檚 support, and are concerned that the government 鈥渉as kept fiscal policy 鈥榯oo鈥 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.鈥

Economic policy-wise, analysts say 鈥渢here 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).鈥

鈥淢onetary policy, as such, is likely to be the key focus and so further loosening of monetary conditions (as already described around BUBOR鈥檚 framework) towards the 2018 election seems a likely course,鈥 Nomura analysts add.

Noting that Orb谩n appears to understand the threat from the opposition Jobbik on the right, the Nomura analysis notes that the prime minister 鈥渉as immediately appropriated one of their policies in recommending a constitutional amendment to give Hungarian law primacy over EU law in matters of immigration.鈥 Nomura sees that 鈥渇urther nationalism and a realignment of domestic policies towards Jobbik鈥檚 platform are likely to be the key result going forward.鈥

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

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