We have seen a significant slowdown in the Romanian economy in 2024, influenced by both internal and external factors. Analyses of available data for the first three quarters and the "signal" data for the last quarter of 2024 show a considerable variation on both the demand and supply side compared to 2023, with the economy recording real GDP growth of 0.7%, slowing down significantly compared to 2023, when real growth was 2.4%.
In recent years, on the aggregate demand side, the sources of economic growth have proved to be consumption (both private and government) and investment (gross fixed capital formation), which are essential for the dynamics of the Romanian economy. Another relevant aspect is the trade balance, reflected in net exports, which has had a predominantly negative contribution against the background of imports which are higher than exports, but also the high import dependence on capital and intermediate goods, as well as the limited external competitiveness of the economy (see Figure 1).
On the supply side, industry and the services sector have been the fundamental pillars of economic output and growth. The data also points to a slowdown in the economy in 2024, with all sectors of activity in quasi-stagnation (services, construction and industry) or declining (agriculture). The NSI data also show that net taxes on products with a dominant positive contribution to the structure of growth in 2024 compared to the other aggregate supply elements (Figure 2).
For 2025, economic growth will depend to a large extent on the conduct of fiscal and monetary policies, as well as on the government's ability to stimulate consumption and investment, against the backdrop of the imperative to reduce the budget deficit through a mix of measures (expenditure cuts and budget revenue increases) that are as growth-friendly as possible. At the same time, maintaining the competitiveness of industry, inflation converging towards the target set by the National Bank of Romania and a dynamic services sector are essential factors for consolidating economic growth.
Another element of uncertainty relates to Romania's country rating, which has been downgraded to the last recommended investment grade by two of the three major international rating agencies (Fitch (negative), Moody's (stable) and Standard & Poor's (negative)). The downgrading of the rating to junk may have a significant impact on the government's future ability to borrow at affordable costs, but also increases the risk that investment may flow out of Romania to other countries or that capital inflows will be reduced.
Last but not least, vulnerabilities related to international trade (see discussions on US tariffs on imports of cars from Europe or other goods), the geopolitical context (the war between Ukraine and Russia), the volatility of financial markets and unpredictable external factors could represent further significant risks to the economy's continued upward trend.
In terms of public finances, Romania is facing a persistent and growing budget deficit, as shown by an analysis of the budget balance for 2018-2024. Available data point to a significant deterioration in the fiscal-budgetary balance, as demonstrated by a steady increase in public expenditure. The year 2020 marked a severe deterioration, with the deficit reaching -9.2% of GDP, as a result of an increase in budget expenditure to 41.5% of GDP, driven by the economic measures needed to combat the impact of the COVID-19 pandemic.
Between 2021 and 2023, the deficit remained high at around -6.4% to -6.5%, indicating difficulties in implementing effective fiscal consolidation measures. For 2024, data point to an increase in budget expenditure to 41.2%, with the deficit estimated at -8.6%.
The graph below illustrates the evolution of Romania's public debt between 2018 and October 2024, showing both its nominal growth and its structure according to the currencies in which the loans were contracted. We observe a significant increase in public debt from around RON 330 billion in 2018 to over RON 931 billion in October 2024 (Figure 4).
This expansion is accompanied by an increase in the debt-to-GDP ratio, as reflected by the blue line, which jumped sharply in 2020 and remained at high levels in the following years (public debt grew more than nominal GDP). In terms of debt composition, there is a predominance of loans in euro and lei, while debt in US dollars (USD) and other currencies accounts for a relatively small share.
The upward trend in public debt emphasises the increasing reliance on external and domestic financing to support budget expenditure / the budget deficit. The sharp increase from 2020 points to the impact of economic support measures taken in the context of the COVID-19 pandemic, while the steady increase until 2024 emphasises the authorities' difficulties in reducing the fiscal deficit.
The high debt-to-GDP ratio, which in 2024 exceeded the 50% threshold, raises questions about the sustainability of this trajectory and the need for prudent economic policies to balance the budget and reduce future reliance on borrowing.
The overall analysis of Eurostat data on confidence in the economy in 2024 shows that while the EU27 and the Euro Area maintain relative stability, with a slight deterioration towards the end of the year, the Central and Eastern European countries show larger variations. Bulgaria and Romania had stronger economic sentiment throughout the year, while the Czech Republic and Hungary showed signs of volatility and Poland remains in a relatively stable range. These developments suggest that, despite European macroeconomic challenges, emerging economies in the region continue to show a degree of resilience and adaptability compared to developed countries, but the drop in confidence in Romania in the run-up to the presidential elections and the associated uncertainty is notable.
The comparative analysis of GDP and the economic confidence indicator reveals a decoupling in 2024, in which, although the pace of economic growth slowed down, the perception of the economy remained stable or rather on hold in line with the new macroeconomic conditions, the twin deficits, and the external outlook (geopolitical situation, slowdown in external demand in the euro area, etc.).
Thus, the dynamics of the economy in the period ahead will depend on the government’s ability to balance the need for macro-stabilisation (which involves reducing the fiscal deficit) with the need to support growth and strengthen confidence in the economic environment.
The graph below highlights the interdependence between household income, consumer confidence in the economy and consumption behaviour over the period 2020-2024 (annual changes, in real terms). While average net wages have been growing relatively steadily, in line with consumer confidence, the latter has been characterised by a significant decline from the second half of 2021 onwards, reaching a trough in mid-2022.
At the beginning of the period analysed, high volatility can be observed, especially in household final consumption, which showed a significant drop in early 2020. This trend can be associated with the impact of the health crisis generated by the COVID-19 pandemic and measures to restrict mobility, which affected purchasing power and led to a decrease in demand for goods and services. At the same time, the consumer confidence indicator, although recovering compared to the middle and second half of 2022, still shows negative values, suggesting a pessimistic perception of the evolution of the economy and individual financial prospects.
NBR data show that the annual inflation rate, as measured by the consumer price index (CPI), has been on a downward trend during 2024, reflecting a gradual reduction in inflationary pressures. However, this favourable dynamic moderated considerably in the third quarter and even a temporary reversal of the trend was observed in the fourth quarter, signalling the re-emergence of price pressures.
In December 2024, the annual CPI inflation rate was 5.14% (compared to December 2023), while the average annual CPI inflation rate was 5.6% for 2024. The favourable developments in most commodity quotations and in the prices of certain categories of goods and services, as well as legislative changes affecting natural gas and electricity tariffs, played an important role in this context. Moreover, the NBR shows in its latest Inflation Report (February 2025) that the dissipation of inflationary pressures associated with previous supply shocks and the decline in import-related costs contributed to the maintenance of a downward inflation path in the first part of the year.
However, the impact of extreme weather conditions on the agricultural sector and electricity consumption was a disruptive factor. Severe drought and excessive summer temperatures led to a significant drop in yields for most crops, with direct repercussions on the food market. At the same time, rising demand for electricity, coupled with production curbs, put additional pressures on the energy market, thus contributing to increased price volatility.
Another factor with a significant impact on inflation was the tax changes implemented in January 2024. The increase in the VAT rate and the increase in excise duties on certain goods and services generated additional inflationary effects, contributing to a slowdown in the disinflation process and, temporarily, to a reversal of the downward trend in inflation.
From the Romanian money market perspective, the graph below illustrates the evolution of the main interest rates in Romania between July 2021 and December 2024, including the 3-month ROBOR, the 12-month ROBOR, the interest rate on interbank transactions and the monetary policy interest rate.
There is a general trend of an accelerated increase in interest rates starting from the end of 2021 and continuing throughout 2022, reflecting the monetary policy response to inflationary pressures. This development is synchronised with the increase in the monetary policy interest rate, through which the National Bank of Romania sought to control inflation in the economy. Consequently, the 3-month and 12-month ROBORs experienced a rapid ascent, peaking between July 2022 and early 2023, followed by a gradual decline as the money market gradually adjusted to the conditions imposed by the central bank's restrictive monetary policy. Starting in the second half of 2023 and continuing into 2024, the downward trend in interest rates has been favoured by easing inflationary pressures. The policy interest rate has remained relatively constant over this period and the spread between the 3M and 12M ROBOR is gradually narrowing, suggesting a reduction in uncertainty about the cost of borrowing over longer maturities.
In 2024, the exchange rates of the main currencies in the region against the euro diverged, influenced predominantly by domestic economic factors. The figure below illustrates the evolution of the main Central and Eastern European currencies (PLN - Polish zloty, HUF - Hungarian forint, CZK - Czech koruna and RON - Romanian leu) against the euro over the period October 2021 - December 2024.
There are significant differences in the volatility of each currency, reflecting both domestic economic factors and external influences such as the European Central Bank's monetary policy and regional geopolitical developments. While the Romanian leu (RON) has been relatively stable, staying within a narrow range against the euro, the other currencies have experienced significant fluctuations . The Hungarian Forint (HUF) was the most volatile currency, recording a steep depreciation starting in the first part of 2022, followed by episodes of appreciation and further declines, reaching its highest level in 2024, indicating a high sensitivity to internal and external factors.
The Polish zloty (PLN) and the Czech koruna (CZK) have shown more moderate fluctuations, but they too have been influenced by periods of volatility, particularly in 2022 and 2023, when financial markets were affected by high inflation, central bank decisions and geopolitical uncertainties. From 2023 onwards, the Czech koruna experienced a gradual depreciation trend, while the Polish zloty showed a slight rebound, but without reaching previous stability levels. In contrast to the approaches adopted by other central banks in the region, the relatively stable evolution of the Romanian leu suggests a more active monitoring and control policy by the National Bank of Romania (NBR) in exchange rate management, both to anchor the confidence of businesses and to ensure a predictable economic climate.
The financial market has been on an upward trend in recent years, with the Bucharest Stock Exchange Index (BETI) reaching an all-time high of over 18600 points in July 2024, after which it stabilised at around 17000. Tensions in international markets are expected to affect the Romanian stock market, but the prospect of interest rate cuts by central banks to support growth may ensure entry into a new expansion cycle. Finally, the downgrading of the country's credit rating to the non-investment-grade category is likely to have a profoundly negative impact on the stock market and the appetite for securities, which may reduce trading volume and the value of the BET index on the Bucharest market.
The National Bank of Romania shows that the low level of financial intermediation remains one of the major structural challenges of the Romanian economy, with significant implications for long-term economic development. In a European context, Romania ranks last in terms of the degree of financial intermediation, with the indicator calculated as the share of banking sector assets in GDP standing at 50.6% in the second quarter of 2024, considerably below the levels recorded by similar economies in the region, such as Poland (92%), Bulgaria (93%) and Hungary (108.5%), and well below the EU average of 215%.
This huge discrepancy is influenced by the financing preferences of companies, which predominantly resort to commercial debt or loans from associates and shareholders instead of accessing bank credit. Romania is thus characterised by the highest dependence on commercial debt financing in the European Union, which highlights structural vulnerabilities in the private corporate sector and limits the role of the banking sector in supporting economic growth.
At the same time, the resilience of the banking sector to possible adverse developments in the macroeconomic environment has strengthened, as demonstrated by both the positive dynamics of the main capital adequacy indicators and the favourable results of the solvency stress tests for the period 2024-2026.
In 2024, NBR data show that the Romanian banking sector maintained a solid position, reflected in asset quality. In line with the trends observed at European level, the non-performing loans (NPL) ratio recorded a marginal increase of 0.2 percentage points from the end of 2023, reaching 2.54% in September 2024 - with a high provision coverage ratio, while the banks' funding model is predominantly based on deposits attracted from the real sector.
However, there is a higher interdependence between the banking sector and the government sector, with banks in Romania recording the highest level of exposure to government borrowing among EU Member States, as the need for state financing to cover the budget deficit has increased.
This link is demonstrated by both loans and government securities holdings (25% of assets in September 2024), as well as government guarantees for loans to the real sector (5.3% of assets) and government holdings in banks (14% of assets). Government securities contribute to improving solvency and liquidity ratios, due to their low risk weights, but increase banks' exposure to concentration and interest rate risk, while limiting financial intermediation through crowding-out effects.
The Financial Stability Report published by the NBR in December 2024 shows that the outlook for the banking sector is favourable, but there are risk factors that could negatively influence future developments, such as domestic and international macroeconomic uncertainties, geopolitically driven interest rate volatility and indefinite turnover taxation.
The current account of the balance of payments is a key indicator of an economy's external position, reflecting the difference between the flows of financial resources into and out of a country. The analysis of data for the period 2018 to November 2024 shows a significant deterioration in the current account deficit, which has progressively widened from -9.5 billion euros in 2018 to -29.4 billion euros in 2024.
This trend was mainly driven by the widening of the goods trade balance deficit, which doubled over the analysed period, reaching -32.1 billion euros in 2024. In contrast, the services trade balance generated a large surplus, rising from €8.3bn in 2018 to a peak of €13.3bn in 2023, but this surplus was not enough to offset the structural deficit in trade in goods. In 2024, the services balance surplus was almost €11.5bn.
Another relevant factor in analysing the current account is the primary income balance, which continued to record negative values throughout the analysed period, widening from -EUR 3.7 billion in 2018 to -EUR 9.3 billion in 2024. This development indicates an increase in external payments made by Romanian economic agents abroad. On the other hand, secondary incomes made a positive contribution, standing at almost EUR 1.3 billion in 2024, but without significantly influencing the current account balance.
Overall, the widening of the current account deficit suggests an increase in the external vulnerability of the economy, which may increase dependence on external financing and impose additional risks to macroeconomic stability. This trend underlines the need for economic policies geared towards reducing external imbalances by stimulating exports of high value-added goods and strengthening long-term economic competitiveness.
Control and streamlining of public spending
To ensure macro-economic stability and avoid long-term financing risks, the government needs to implement sound fiscal reforms, improve revenue collection and rationalise public spending. The priorities should be the following:
Attracting European funds as well as the National Recovery and Resilience Plan should be a priority to support structural reforms and investments in key areas (digitalisation, transport, health, education, energy, etc.).
Economic growth forecasts for Romania
Table 1 presents the forecasts for Romania's economic growth for the years 2025 and 2026, according to the estimates provided by several international and national institutions. There is a variation in the projections, reflecting differences in methodology and assumptions in the economic models used by each institution.
Overall, all institutions foresee moderate economic growth, with a slight acceleration in 2026, which indicates a positive outlook for the Romanian economy, but with potential risks that could influence these projections, such as financial market volatility, geopolitical factors and the impact of fiscal and monetary policies at national level - in particular the conduct of fiscal policy and the way the budget deficit is adjusted -, but also the external demand at European level for products and services exported from Romania.
The International Monetary Fund (IMF) offers the most optimistic forecast, predicting GDP growth of 3.3% in 2025 and 3.7% in 2026, suggesting expectations of a stronger economic recovery. At the opposite pole, the World Bank forecasts the most modest economic growth for 2025 at 2.1%, indicating a more conservative outlook on the pace of economic expansion.
Estimates from the European Commission and the National Commission for Strategy and Forecasting (CNSP) are similar for 2025 (2.5%), but the CNSP expects economic growth to accelerate slightly to 3% in 2026, compared to 2.9% as forecast by the European Commission. The European Bank for Reconstruction and Development (EBRD) forecasts growth of 2.6% in 2025, but does not provide an estimate for 2026.