The European Commission, under its Autumn Forecast published on November 17, cut the projections for Romania’s economic growth to 0.7% in 2025 and 1.1% in 2026, half the expectations included in the previous May 19 Spring Forecast. The growth would nearly double to 2.1% in 2027.
The revised projection incorporates the fiscal slippage in 2024-2025 and the effects on the growth of the Romanian government’s subsequent more contractionary fiscal stance in 2025 and 2026.
Specifically, the general government budget reached 9.3% of GDP in 2024 (versus 8.8% assumed by the EC in its May 19 Forecast), and it is seen at 8.4% of GDP (7.9% expected in May). Consequently, Romania took steps to tighten the fiscal stance, such as to bring the fiscal gap down to 6.2% of GDP in 2026 and 5.9% of GDP in 2027 (this last target needing further budgetary measures).
The fiscal stance is expected to be contractionary in 2025 and 2026, before turning neutral in 2027, the Commission said in its Autumn Forecast. The composite index, which takes positive values for contractionary fiscal policies and is seen as neutral between +/-0.25%, is seen at 1.7% in 2025 (from 1.4% estimated in May) and will rise to 3.0% in 2026 – compared to a neutral -0.1% projected in May.
The tighter contractionary fiscal stance is shaping not only the magnitude, but also the structure of the economic growth.
In 2026, the full effect of the large fiscal consolidation measures, i.e., the freeze of public wages and pensions and tax increases, in combination with still elevated inflation, is expected to lead to a small contraction in private consumption (-0.8% y/y, from modest +0.7% in 2025 and still buoyant +5.7% in 2024). Public consumption is also forecast to drop further (-1.7% in 2026, from -0.6% in 2025).
However, gross fixed capital formation is expected to accelerate notably from 2.7% in 2025 to 5.4% in 2026 on the back of improved business confidence and completion of RRP investments, and remain robust at 2.6% in 2027.
The decline in private consumption should also strongly contain the growth of imports, while exports are set to continue their positive trend as wage growth slows further, resulting in a positive contribution to growth of net exports.
The current account deficit is seen as accordingly shrinking to 6.4% of GDP in 2026, from an estimated 7.9% of GDP this year, to further ease at 6% of GDP in 2027. Despite the end of the RRF, gross fixed capital formation is set to hold up well, with Romania making larger use of cohesion funds.
iulian@romania-insider.com
(Photo source: Cosmin Iftode/Dreamstime.com)
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