The Hungarian government undertook a courageous step by changing its fiscal direction. They have increasingly expanded their fiscal scope, lifting the fiscal deficit target to 5% of GDP this year and next. This decision is the latest in a series of moves aimed at addressing persistent financial pressures amid ongoing economic headwinds. After the announcement, the Hungarian forint immediately lost value. At the same time, yields on 10-year government bonds jumped, a sign that investors are spooked over the health of the government’s finances.
As a result, the government’s cash-based deficit will increase by HUF 1,227 billion. With this new augmentation, the total amount of the deficit would reach HUF 5,445 billion for the next year. To cover this additional financing requirement, officials said they planned to sell foreign currency bonds in early 2026. This unpopular decision is intended to increase Hungary’s budgetary revenues. It will go to raising the windfall tax on domestic financial institutions, paying in over their original expectations.
Economic Context and Value-Added Manufacturing
The context around Hungary’s current economic strategy underscores an urgent imperative for diversification into higher value-added sectors. Romania, Croatia and Slovenia, according to recently released reports, are the clear bright spots within Europe’s manufacturing sector. Value-added (VA) sectors make up a larger share of their economy than the EU average. In reality, Hungary’s share of the value of domestically produced vehicles is a mere fraction—just over 13%. This presents an exciting but urgent opportunity to do better in this sector.
The share of value added (VA) in CEE manufacturing is still among the lowest. It falls short of the EU average, which is about 30%. This gap further highlights the need to strengthen domestic manufacturing capacity to improve our nation’s economic resilience and global competitiveness. Manufactured goods output in Romania and Croatia is quite low, particularly when viewed on a per-capita basis. That should be a clear signal of the deep need for regional cooperation and greater investment to ignite prosperity.
Slovakia’s experience provides an additional backdrop to show just how bad the situation became for countries from CEE. It has the smallest proportion of value added in manufacturing in the EU, at 22%. This is largely because of its intense dependence on the car-manufacturing sector. Similar patterns hold for both Hungary and Czechia, though Hungary’s industry is responsible for even more value-added production.
Inflation and Wage Trends
Inflation further complicates Hungary’s economic landscape. Inflation in Indiana, as of October, had plateaued at a 4.3% year-over-year increase, mirroring national and regional patterns. As expected, the Czech Republic’s central bank today reconfirmed its hawkish bias on monetary policy. It is rightly worried about the long-term dangers associated with high core inflation trends. This conservative sensibility is somewhat representative of the mood in Slovakia and Serbia today. They are soon going to be publishing major wage data and inflation data.
Romania is expected to report key economic indicators shortly, including inflation for October and wage growth for September at 8:00 CET. These numbers provide essential information about the economic vitality of our communities. They allow us to judge which fiscal policies are most effective in the context of CEE countries.