Orbanomics failure costs Hungary’s strongman his grip on power

Hungary headed to the polls on Sunday to vote in a historic election, one that is relevant far beyond its borders.In a clear sign of the shifting world order, both Russian president Vladimir Putin and US president Donald Trump backed incumbent prime minister Viktor Orban to the express detriment of the European Union and Ukraine. But Orban conceded defeat after being rejected by Hungarian voters who have been living under Orbanomics, the self-styled “illiberal” model put in place by the country’s long-serving premier. Its main effect has been to centralise economic power and decision-making while undermining independent institutions.The model has been a disaster for Hungary. It has made the country far poorer than it would be otherwise, with prices having risen higher than in peer nations as corruption proliferates and public services deteriorate. READ MOREFuel protests: Some motorway blockages remain as protesters say €505m package ‘not enough’Rory McIlroy overcomes demons to retain Masters title after another dramatic final dayAn Post customer finds his parcel in green bin after second attempt to send it to FranceThe Irish building contractor who ‘fleeced’ US homeowners of €1.3 millionThis is not surprising – populist economics of both the left- and right-wing varieties tend to cause further damage, and Orbanomics is a textbook example of right-wing populism with Hungarian characteristics.Under Orbanomics, international and “opposition” firms were disfavoured while markets and public tendering were made far less free and fair. As with other populist governments, independent institutions – the media, central bank, judiciary and universities – have been undermined and co-opted.The early period of Orban’s second stint in office beginning in 2010 saw a period of stable economic growth akin to a sugar rush before an inevitable crash. Cheap Russian energy, inflows of foreign capital and EU disbursement funds soon dried up and “sharply exposed pre-existing structural weaknesses”, according to the Centre for Eastern Studies.Hungary’s economy has remained orientated around low value-added activities – chiefly, assembling German cars – and the nation has made little effort to move up the value chain. Hungarian productivity growth is chronically low and rates of investment in education and research and development are far below the EU average.The oligarchic restructuring of the economy has, of course, not helped, further weakening competitive forces and compounding underinvestment. The result has been stagnant growth in gross domestic product (GDP).[ Viktor Orban concedes defeat in Hungarian election as opposition heads for landslide winOpens in new window ]Hungary has also experienced the highest cumulative inflation among countries in the EU since 2020. Overall, prices are up 57 per cent over the period, nearly double the rate for the bloc as a whole (28 per cent).Voters truly hate inflation. For evidence, look no further than the US, which tilted back to the twice-impeached Trump largely due to rapid price rises. Hungary’s experience as an inflation outlier is down to domestic policy. In advance of the April 2022 election, the government introduced additional stimulus, in a move some analysts saw as an attempt to “buy” votes. It repeated the same tactic before this election, offering giveaways costing 2.2 per cent of GDP. Meanwhile, temporary government price caps proved largely ineffective.In line with the populist playbook, the government has steadily reduced the independence of the country’s central bank, leading to persistently higher inflation in the run-up to the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine. Annual inflation rates peaked above 25 per cent.Moreover, policies aimed at boosting fertility – a centrepiece in Orban’s nationalist agenda, which includes tax breaks and interest-free loans and is estimated to cost about 5 per cent of GDP – have so far failed. While the fertility rate initially recovered from its 2011 nadir to about 1.6 average births per woman, it plunged back down to 1.3 in 2025. This is well below replacement rate and neighbouring countries that did not implement such expensive measures, for example Bulgaria and Slovakia.Low fertility combined with a staunch anti-immigration stance equals a shrinking population. Hungary has 500,000 fewer people since 2011, which equates to a 4.5 per cent decline.The country also grapples with labour shortages in key sectors such as health, as thousands of doctors emigrate in search of better pay. The education sector is facing staff shortages too.[ EU leaders grow tired of the Viktor Orban showOpens in new window ]With growth low and a relatively high budget deficit, prospects for remediating some of these issues are dire. Hungary’s budget deficit now roughly equals its family policy outlays at 5 per cent of GDP, which is high compared with peers. Its debt servicing requirements are the highest in Europe as lenders demand an “Orban premium”.While Hungary’s GDP is expected to recover next year owing to increased pre-election fiscal giveaways, Capital Economics warns that this will push up the risk premium on its public debt.Orbanomics has clearly failed. The economic model has left Hungary poorer and less productive. But the country’s prospects could improve. One near-term benefit might be the disbursement of withheld EU funds worth around €20 billion, or roughly 10 per cent of nominal GDP. In the long term, if corruption is cut and rule of law restored, much-needed investment could rebound, supporting growth and renewed prosperity. – Copyright The Financial Times Limited 2026

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