Playing on Normal my highest racial favour is 80 and my lowest is 25. You must be doing something differently. I also wonder if there's a difficulty bug, I forgot to build anything in the second turn of my chapter 3 and yet most of my battles were 50% or above without using cards. Using only a couple of cards I've been able to win every fight, some of that is down to still being able to win 50% duels consistently using Dragon Form but mostly the Imperial Army has been able to overwhelm my enemy through weight of numbers. There's been some luck I've won 7 or 8 75-90% autoresolves but the campaign doesn't sound nearly as brutal as you suggest.

The one potential difference is I totally rejected the demon's offer in Ch 2 as I was expecting this all along. If you gave him a lot it may possibly have worked against you.