GDP growth is projected to recover to 2.8% y\/y in 2025 and 3.4% in 2026, from 0.8% in 2024, under a no-policy-change scenario, aided by statistical base and carry-over effects, Erste Group\u2019s latest macro update on Romania reads, admitting that \u201cthe risks are clearly skewed to the downside.\u201d<\/p>\n
Erste Group issues a broadly optimistic forecast based on the assumption that political developments are not far from the \u201cbusiness as usual scenario\u201d envisaged before the presidential and parliamentary elections.\u00a0<\/p>\n
\u201cThe outlook for 2025 remains blurred,\u201d the report reads, however, on a cautious note.<\/p>\n
\u201cIn Parliament, the situation is somewhat more stable [than at Presidency where the elections were scrapped],\u201d the report further states.\u00a0<\/p>\n
For some unspecified reasons, Erste Group assumes that the delayed presidential elections will \u201cdampen appetite for addressing the large fiscal deficit until after the new president is elected.\u201d In fact,\u00a0it is the problematic formation of a ruling coalition and the structure of the potential ruling coalition that \u201cdampens the appetite\u201d for fiscal consolidation. The formation of a ruling majority, pictured by Erste Group as a fait accompli, is the key source of uncertainty and concerns.<\/p>\n
The Parliament is summoned for December 20 and the far-right party AUR has already announced plans to initiate the president\u2019s destitution with the help of the other far-right parties that altogether control over 30% of the MP seats. At the same time, the formation of a ruling coalition is advancing at a slow pace.\u00a0<\/p>\n
The four \u201cpro-European, pro-NATO\u201d political parties set informal and high \u2013 perhaps too far \u2013 targets, such as supporting a joint presidential candidate. Forming a functional government would be a sufficient first step, but even this seems a significant challenge.\u00a0<\/p>\n
The Austrian financial group hopes that even under the \u201cno policy change\u201d scenario, Romania will still be ready to reduce its public deficit from 7.9% of GDP in 2024 to 7.0% of GDP in 2025, in line with the 7-year fiscal consolidation plan agreed with the European Commission. However, the European Commission made clear in November that no policy change scenario would result in no public deficit change \u2013 meaning 7.9% of GDP public deficit in 2025.\u00a0<\/p>\n
This will not have a dramatic impact on the public debt, which exceeded the 50%-of-GDP threshold in 2024 and is hedging toward 60% of GDP in the coming years, but on the cost of financing, the country is paid to finance its public deficit and rollover its public debt.<\/p>\n