ING Romania warns fiscal consolidation will weigh on fragile growth and inflation outlook
<p>The planned fiscal consolidation measures in Romania are likely to weigh heavily on already sub-optimal economic growth, ING Bank Romania economists Valentin Tătaru and Ștefan Posea warned in an analysis cited by <a href="https://cursdeguvernare.ro/ing-cresterea-economica-a-romaniei-este-sub-potential-energia-si-deprecierea-cursului-vor-impulsiona-inflatia-deficitele-ar-putea-ramane-foarte-ridicate.html?mc_cid=99289e4388&amp;mc_eid=607bd7d763" rel="noopener" target="_blank">CursDeGuvernare</a> on June 16.</p>

<p>They expect the country's GDP to grow by just 1.2% in 2025, well below the Government's initial forecast of 2.5% and even lower than the recently revised official estimate of 1.4%.</p>

<p>The analysts also revised upward their forecast for the budget deficit, now projected at 7.5% of GDP in 2025, exceeding the government's 7% target. The widening fiscal gap, combined with delayed reforms and an uncertain policy environment, continues to undermine investor confidence.</p>

<p>"While spending cuts appear to be at the heart of policy negotiations, investment cuts and/or tax increases for faster fiscal consolidation are also likely to be considered – adding to uncertainties about growth and inflation," the analysis reads.</p>

<p>The ING team warned that the liberalization of energy prices and the depreciation of the leu could each add approximately one percentage point to inflation. Further tax increases would amplify the upward pressure.</p>

<p>"Although recent infrastructure investments and Schengen accession promise medium-term benefits, immediate economic conditions remain fragile. Balancing fiscal prudence, political consensus, and monetary stability will be essential in the coming months," the economists stated.</p>

<p>After a modest 0.8% economic expansion in 2024, Romania's GDP stagnated in the first quarter of 2025. High imports and weak investment were the primary contributors. Preliminary data show domestic demand remains strong, but industrial and service sector output continues to underperform. The trade deficit widened by 26.9% y/y in Q1, driven by weak exports and rising imports.</p>

<p>In the medium term, ING expects wage growth to decelerate and fiscal conditions to tighten, limiting private consumption. Export recovery is not anticipated before 2026 due to broader structural challenges in European competitiveness, particularly in Germany.</p>

<p>"The consumption-based growth model is showing its limits. Only sustained investment in productive capacity can restore healthy growth and reduce the structural trade deficit," the economists concluded.</p>

<p>The fiscal outlook remains precarious. ING argues that restoring financial market confidence would require a combination of spending cuts, improved tax collection, and possibly new taxes. The formation of a cross-party task force focused on expenditure reform could serve as a fallback mechanism if current government talks remain stalled.</p>

<p><em>(Photo: <a href="https://www.dreamstime.com/" rel="noopener" target="_blank">Ruletkka/ Dreamstime</a>)</em></p>

<p><em>iulian@romania-insider.com</em></p>