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Shifting geopolitical backdrop and fiscal challenges to mark 2026
With the economy growing at a lackluster pace of around 1% for the full year (no full year figure available at the time of writing), last year turned out to be quite comparable to the soft 2024.
This came amid several factors weighing on economic activity: 1. the fairly uncertain external backdrop and low economic growth context in many major economies, which weighed on Romania’s exports; 2. a more prudent consumer amid a cooler labour market; 3. an ongoing fiscal consolidation started to tackle the bloated budget deficit. 4. the internal uncertainties which may have weighed on both private and public investments. All of these remain factors going into 2026 (more on that later), but the good news is that Romania has, thus far at least, avoided a hard landing akin to the 2009-2010 as it started to finally address the twin deficits, arguably the most pressing internal imbalances.
Romania ended 2025 with a 7.7% of GDP budget deficit, some 0.7 percentage points below the government’s target and well below 2024’s gap of 8.7% of GDP. This was possible thanks to a combination of tax hikes and some spending cuts which came into effect mid-2025, with more adopted for an early 2026 enaction. The current account deficit saw a much smaller adjustment (based on the January-November 2025 developments), nevertheless, it improved marginally instead of deteriorating.
All in all, decent results particularly when considering the fragmented nature of the ruling coalition. Following the presidential elections of May 2025, a key event won by pro-European and centrist Nicusor Dan (independent), a loose coalition of mostly pro-European parties was formed, but constant bickering among the coalition parties suggests a difficult process to adopt reforms. The tension has been dialed up consistently over the past months, but for now, the PM’s position seems to be safe. That said, we need to acknowledge that there is a serious risk that political wrangling may, at one point, lead to the government’s collapse and, maybe, early elections or a minority government, neither a positive development.
The markets have thus far reacted positively to the developments, with Romania’s 10Y bond yields decreasing towards 6.6% (mid) as of late January 2026 after peaking at around 8.4% in April 2025. Such levels are also fairly close to a 2-year low, which highlights the positive developments, but the level itself suggests that much more work needs to be done.
Looking into the future, a rating outlook upgrade towards the end of the year does not look like a too far-fetched story at this point, but the current government needs continuity, the economy needs to continue performing adequately and, last but not least, the fiscal consolidation should continue. Indeed, with a c.6% of GDP budget deficit target for 2026 with fairly modest economic growth and elevated social tensions is quite ambitious. The room for error is small.
Amid this backdrop, we expect the GDP expansion to reach slightly above 1% in 2026, the third year in a row around this level. The good news is that if the government follows through on its fiscal adjustment plans, 2026 may actually turn out to be a transitional year to much faster growth over the medium term rather than another lackluster year in a string of such years.
Looking a bit more in-depth at the major growth drivers, we want to touch on investments as a key focus point that underpins our medium- to longer-term rosy view regarding the local economy. Gross fixed capital formation has been consistently above the previous cycle’s levels during the past years. The most tangible improvements are related to infrastructure, one of Romania’s most pressing areas in terms of diminished competitiveness. In 2019, Romania had just around 850 kilometers of high-speed roads, whereas last year, it had surpassed 1,400 kilometers; with over 300 kilometers (a record for Romania) that could be completed in 2026, it would mean the doubling of the highway network in less than a decade. An additional 1,000 kilometers (besides 2026’s scheduled completions) are either being constructed or seeking a construction company and may be completed by the early 2030s. Essentially, this would mean that Romania’s highway network will have tripled within a little more than decade. Finalizing these highways/expressways and reaching 2,800 kilometers would mean closing the gap with regards to regional peers like Hungary (which has almost 2,000 kilometers as of 2025) and Poland (over 5,400 kilometers as of early 2026). Relative to each country’s surface, it would still mean Romania will lag peers, but it would at least be part of the conversation while also displaying arguably the best labour costs-labour productivity balance in this part of the world.
Near-term hiring intentions in CEE, Eurozone dropped, but nowhere near recessionary levels of 2009-2010
Source: Eurostat, Colliers
The labour market should remain soft throughout 2026, as external uncertainties and internal sluggishness will weigh on hiring intentions, but for now, the economy seems to be weathering the storm fairly well. After employment numbers peaked in the first part of 2025 (reaching the highest level in more than two decades), the labour market shed less than 1% of jobs as of the autumn 2025. While bad news, this is nowhere near the 15% job losses on a net basis which were recorded during the 2008-2010 recession.
Nevertheless, as the labour market weakens a bit, it also means that wage hikes will become quite limited. And given that Romania closed 2025 with a nearly 10% inflation rate (largely on account of the tax hikes/fiscal changes adopted mid 2025), real earnings have again turned negative – i.e. nominal wage growth is being outpaced by inflation. This is already turning consumers to become more cautious, negatively impacting consumption which has, until now, acted as the main pillar of growth for the local economy. This is also what will keep the economy down through most of 2026, but there are some good news on the horizon. Assuming the fiscal consolidation will continue in a decent pace, confidence will return and some employers may reverse course a bit; furthermore, CPI is expected to drop sharply following the exhaustion of the base effect from the tax hike, potentially moving below 4% towards the end of the year. More importantly, this could allow the central bank to resume its rate cutting program as soon as Q2 2026, which may offer the ailing economy some support and maybe anchor expectations among consumers and companies that the worst may be behind.
Regarding other financial markets’ developments, given Romania’s high ‘euro-ization’ rate, we emphasize that Romania’s FX regime is that of a ‘managed float’. This means that central bank in the past has smoothed the RON’s depreciation in order to limit the impact that such a development would have on import prices and then, on CPI. Given the current inflation backdrop, we would not expect any sudden changes to this situation, but the significant current account deficit does suggest further increases of the EUR/RON exchange rate (maybe with 1-2% relative to 2025).
Romanians tend to view both the EU and the US in a positive light
Source: EC
We also want to touch a bit the uncertain external backdrop in terms of geopolitics. For a small and open economy like Romania, sudden changes can expose the economy to a lot of issues, particularly given the limited (fiscal) leeway that the country currently has to offer support. Furthermore, Romania is in a geopolitical hotspot. With tensions between the EU and the USA on the rise, it is important to note that Romanians have a quite positive view of both sides, well above the average EU citizen in both instances, as per the 2025 autumn eurobarometer published by the European Commission. Should the relations between the US and Europe thaw at one point, Romania would stand in a fairly good geopolitical spot; a reverse scenario may force it into a choice between the two which may damage the longer-term outlook. Nevertheless, we would not speculate on this matter, rather express that Romania’s current position is interesting and it could serve as a strong anchor to boosts its geopolitical profile.
Overall, assuming no major negative developments either when it comes to the internal backdrop or the external situation, 2026 will likely turn out to be a transitional year, laying the groundwork for future growth down the line. We emphasize that despite the softness of the economy, the potential for growth is still there. In the 2020-2030 decade, as per the IMF’s data, Romania is set to see the 15th strongest growth in the world, a small downgrade from the 8th best growth rate in the 2000-2020 two-decade period, but still an impressive result and one of the best in this part of the world.
Main forecasts for Romania
Source: NIS, Eurostat, NBR, Colliers
Romania’s highway Network in 2026
Source: www.130km.ro