In Romania, a consumer confidence index has fallen to its lowest level in 32 months. This sharp drop marks a historic low point for the country’s economic fortune telling among its people. Both the backward-looking and forward-looking parts of this index have worsened. This decline underscores growing concerns about the country’s overall economic situation. The government presented a fiscal consolidation package on 1 July, including significant tax increases. This economic downturn comes as those changes are being implemented, and they are predicted to reduce disposable incomes starting in the near future.
The new fiscal consolidation package entered into force on August 1. This package contains a dozen tax hikes, including raising Value Added Tax (VAT) rates and excise duties. Consumers should be terrified by these changes. Yet as families get ready to absorb this financial hit, consumer confidence has plummeted.
Economic Measures Impacting Consumer Sentiment
The Romanian government’s recent fiscal measures have deepened concerns about the macroeconomic stability. As consumers deal with a barrage of new taxes, they’re worrying more about their overall financial situation and ability to spend. The end of electricity price caps this month is yet another reason for the drop in consumer mood. Amid increasing utility expenses, many families face their disposable income squeezed even more.
Alongside the fiscal measures Romania also held two government bond auctions yesterday, pointing to both a difficult financial environment still ahead and a fight-back underway. Further, a higher-than-planned amount of RON 500 million was raised via the auction of six-year bonds. The demand for these bonds ballooned to RON 1.4 billion. This is an almost threefold increase from the previous auction of RON 808 million.
Demand was really strong pushing the bid-to-cover ratio up. Consequently, the average accepted yield dipped down to a low 7.31%. In the next auction, RON 400 million was accepted from 5-year bonds maturing in 2027 at an average yield of 7.23%. These numbers are a strong sign of investor confidence, even with consumer sentiment concerns taking center stage.
Comparative Trends in the Region
As Romania continues to try to come to terms with falling consumer confidence, the picture is much brighter in nearby countries. Like their neighbors to the east, both Czechia and Slovakia have seen increases in their national consumer sentiment indices. This juxtaposition provides a perfect illustration of how the regional economic conditions can shift consumer mindsets in opposite directions, even across a border.
Croatia and Hungary achieved remarkably durable consumer confidence. In stark opposition, Poland, Serbia, Slovenia and Romania have all seen drops in this key sign of economic fitness. The contrasting trajectories illustrate the contentious economic reality in Central and Eastern Europe. Here, external factors and local policies are both important.