Romania’s economy was the slowest growing in EU with only 0.8% yoy growth in the first 9 months of 2023. The whole country seems to be looking forward to 2026 with a lot of hope. The latter expects a more robust growth of 2.1%, largely fueled by higher investment. This change for the better is welcome news indeed, given dark skies above, and is contained in the Recovery and Resilience Plan (RRP). As the legislation approaches its fifth and final year in 2026, it continues to spur innovative public and private capital formation.
The RRP also underpins Romania’s entire economic strategy. It aims to increase investment and foster innovation, while addressing structural issues that have been persistently harmful. Competitive and supply-side constraints continue to weigh heavily on Romania’s economic potential. These problems may darken its medium-term economic prospects despite the rosy projections. Though optimists would like to believe otherwise, analysts warn that such imbalances could prevent the full benefits from expected growth from ever materializing, requiring sustained vigilance.
Inflation is one of the most pressing issues for Romania’s economy. Headline and core inflation are expected to fall sharply, to about 3.7% yoy by late 2026. The upcoming expiration of current price caps poses upside risks to inflation, too. The government is going after fiscal consolidation with a vengeance. As such, aggregate demand will likely go down further, adding to a strong disinflationary story.
Economic specialists foreseen a total easing of Romania of 125 bp until 2026. We then expect the central bank to begin reducing policy rates in H1-26. Expect the first cut to occur at their May meeting. At the end of 2026, Governor’s policy rate is projected to level off at 5.25%.