Hungary's cash flow-based budget deficit reached HUF831.2bn (€2bn) last month, bringing the Q1 gap to HUF2.55 trillion, or 62% of the full year target, according to preliminary data from the National Economy Ministry. Analysts cast doubt on the viability of the government's revised growth target, and the National Bank (MNB) also warned the trade war could cut back growth as much as 0.6pp in 2025.

The monthly fiscal shortfall was the second-highest deficit for March in 24 years.

Tax and contribution income grew 11.6% year on year, with VAT receipts contributing HUF265.6bn in additional revenue. This suggests stronger-than-expected consumption activity and the impact of higher food prices. Rising expenditures, especially on pensions and interest, pushed the deficit higher. Interest expenditures rose 25% to HUF1.55 trillion due to the maturing of dollar-denominated bonds and of inflation-linked government securities. Utility subsidies also contributed to the elevated deficit. 

Pension payments, including the extra 13th-month entitlement, reached HUF1.2 trillion during the quarter.

Social security financial funds posted a deficit of HUF115bn, and separate state funds had a surplus of HUF19.3bn, in line with earlier trends.

Hungary’s Q1 deficit mirrors the same trajectory seen in previous years. The front-loaded nature of expenditures, particularly interest payments on retail and FX bonds, was not unexpected.

The government had to revise its deficit targets in the past years and implement mid-year fiscal corrections to meet its targets.

The official 3.7% deficit target remains within reach if fiscal discipline is maintained, opined ING senior analyst Peter Virovacz. "We now see the deficit closer to 4% of GDP, with risks skewed to the upside," he added.

In its revised 2025 macroeconomic path, the government assumes slower growth (2.5% compared to 3.4%) and higher inflation (4.5% vs 3.2%), which could add further pressure to meeting fiscal targets. This is compounded by the risks emerging from the global trade war, which pose additional threats to GDP targets, financial website Portfolio.hu notes.

Hungary’s central bank has warned that recent changes to global trade regulations could slash growth 0.5-0.6pp, while also posing upward risks to inflation, according to a statement published following the Monetary Council’s non-rate-setting meeting on Tuesday, April 8. The MNB reaffirmed its commitment to maintain a strict, stability-oriented monetary stance to achieve price stability

The government has been counting on the European Commission to allow member states greater fiscal flexibility in light of rising defence expenditures. As geopolitical tensions have increased, the majority of EU countries, including Hungary, have ramped up their military spending in line with NATO commitments.

Analysts caution that Hungary’s persistently high budget deficit remains a structural concern. Without further fiscal consolidation, the shortfall could exceed 5% of GDP in 2025, OTP Bank analysts said in a recent report.

The government’s 3.7% target for this year and 3.5% for 2026 are unlikely to be met without significant adjustments, especially given upcoming elections. The full impact of granting lifelong exemption to mothers of two from the personal income tax is seen to reach 1% of GDP, fully in place from 2029, as tax exemptions will be introduced gradually. 

OTP analysts put this year's growth at 2%, but warned that the trade war and foot-and-mouth outbreak pose downside risks to an already "fragile recovery."  Domestic consumption is set to rise 5%, helped by looser fiscal policy, while investment activity could also pick up after a sharp contraction in 2024.