Romanian
Economic Outlook

All in all, this is not a great look for the Romanian economy going into 2025, as it highlights the economy is too reliant on private consumption. In turn, this is highly dependent on the state’s ability to increase earnings of some categories of people, like the elderly, but it is also dependent on the wages for the roughly 5 million employees continuing to move convincingly above the inflation rate.

And this is why we cannot start 2025 with too much of an optimistic view: for one, the government’s fiscal flexibility is virtually non-existent, given that Romania entered 2025 with the biggest structural fiscal gap in the European Union. Secondly, companies in Romania are increasingly cautious about expanding and net job creation has slowed greatly over the last quarters. Given the state of the global economy and the heightened external uncertainties, as well as the unclear internal situation in Romania when it comes to politics (more on this below) and imbalances, it is no surprise that companies are growing wary to expand their personnel numbers. Last year, net job gains for the whole economy stood at roughly 30,000, which is the second worst figure since 2013, second only to 2020; this is also a far-cry from the 2014-2018 period, when the economy was delivering, on average, over 100,000 jobs gains/year. Despite slowing job creation, the persistent labor market tightness has driven wage growth in Romania above levels seen in other major CEE economies, hence, allowing the country to catch up with regional peers.

In terms of internal imbalances, Romania still fares considerably worse than its regional peers. Last year saw the fiscal deficit expand well worse than the initial target of 5% of GDP, ending the year at 8.6%, corresponding to the worst structural budget gap in the EU. Furthermore, the current account gap continued widening and likely reached levels around 8% of GDP versus 7% in 2023, with the majority of other major CEE states running a balanced balance of payments (for the most part) or even surpluses. This sets Romania apart when it comes to how exposed the country is to an adverse economic scenario; consequently, should a major negative event happen, Romania would likely face a steep adjustment akin to the 2009-2010 recession, which was one of the deepest in the EU.

This is part of the reason why Fitch Ratings lowered the outlook for Romania’s sovereign investment ratings from neutral to negative late in 2024, meaning that the country’s investment grade is hanging by a thread (Romania is rated BBB-, just one notch above ‘junk’ bonds). While we doubt a rating downgrade is immediately on the horizon, it looks much more likely than not at this point if things continue on this path when it comes to reforms and the lack of meaningful correction regarding the internal imbalances.

The political landscape following the 2024 elections presents additional challenges. Romania’s current governing coalition is formed of several parties of different political families, united loosely by a stated pro-European stance, with a strong opposition of 3 Euroskeptic parties. The government’s slim majority is not encouraging given the need for material reforms to change things; neither is the situation following 2024’s unprecedented cancelation of the presidential elections following accusations of external meddling by the country’s secret services. The new presidential elections will take place in May, with polls showing that the hard-liner Euroskeptic candidate remains in front; it is likely that most investors will remain on the sideline until more clarity on both necessary reforms and what will happen after the elections.

Irrespective of the result, we also want to bring up the fact that the vast majority of the population remains firmly in favour of the country’s EU and NATO memberships. This should help alleviate some concerns, regardless of the outcome of the election.

On the positive side, inflation is set to continue its move lower, which will allow the central bank to continue the easing process it started in 2024. This will help fuel both consumption and, to a lesser degree, investments. Barring any unforeseen external events that would drive inflation higher and any tax changes that would impact consumer prices, inflation should move from 5.1% at the end of 2024 to sub-4% levels by the end of the year.

All in all, 2025 is shaping up to be a year of major uncertainties, with our current GDP growth forecast of slightly over 2% more likely to come under negative revisions than positive ones if we look at the risk balance over the medium term. Despite these challenges, Romania's long-term economic trajectory remains promising. The country achieved the EU's highest GDP per capita growth rate during 2000-2020 (barring a few exceptions like Ireland, but surpassing all other CEE economies in terms of dynamic), including strong post-pandemic recovery, despite experiencing a severe recession in 2009-2010. This resilience reflects Romania's significant growth potential. This is due to the country having quite important untapped growth resources, which still holds true to an extent as of 2025 when looking at the longer term picture: for instance, completing some major infrastructure projects will lead to major growth down the line, while moving the needle only a bit when it comes to education ​ can lead to drastically better results. Until then though, the risks are quite significant and the economy could be heading for a hard landing this year, as Romania is arguably in its riskiest position since 2008.