EC expects moderate economic recovery in Romania this year and in 2025

EC expects moderate economic recovery in Romania this year and in 2025

The European Commission (EC), in its Winter Forecast on February 15, revised downwards its forecast for Romania’s economic growth to 2.9% for 2024 and 3.2% for 2025, 0.2 percentage points (pp) down for each of the two years compared to the November 15 Autumn Forecast.

The downward revision is milder than the average deterioration in EC’s expectations for the EU or euro area (0.9pp and 0.8pp, respectively), and the country is still expected to perform a stronger economic advance in the Union this year.

Romania’s economy slowed down to 2% growth in 2023 from 4.1% in 2022, according to the flash estimates from the statistics office, compared to a more pessimistic 1.8% estimate by the European Commission.

The economy regained momentum in the last months of 2023 – a sentiment confirmed by the flash estimates from the statistics office – boding well for the economic activity in 2024, the EC reasons based on available high-frequency data. The Commission says that the economic recovery in 2024 would be driven by stronger private credit growth and continued increases in real disposable incomes.

While private consumption is expected to accelerate, investment will also remain the main contributor to GDP growth this year. Monetary policy is set to remain tight in 2024 and only relax gradually as inflationary pressures abate.

The Romanian government on February 12 updated its macroeconomic forecast, envisaging growth rates of 3.4% and 4.0% for this year and 2025, respectively.

Regarding the prices, the EC expects steady disinflation starting January 2024. The figures are broadly consistent with the central bank’s targets (although expressed in HICP terms as opposed to national inflation used by the monetary authority).

Average annual HICP inflation is projected at 5.8% in 2024 before slowing down to 3.6% in 2025, broadly unchanged from autumn, according to the EC’s Winter Forecast. Risks are, however, tilted towards a more gradual disinflationary process if salaries and pensions continue to increase fast, the Commission warns.

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