ING sees 1.6% economic growth in Romania this year, highlighting geopolitical risks
<p>In an economic update report, ING Romania said it expects 1.6% economic growth this year under the baseline scenario, however noting that "geopolitical risks cloud the outlook."</p>

<p>"With the May elections approaching, the evolving political landscape may influence the country's direction. The decisions made in the coming months will be pivotal, steering Romania's trajectory for some time to come," the report reads.</p>

<p>On a positive note, ING expects to see the benefits of the Schengen ascension and infrastructure upgrades translating into productivity improvements.</p>

<p>The government hopes for 2.5% growth and drafted the year's public budget accordingly.</p>

<p>ING analysts expect growth to marginally pick up from 0.9% in 2024 to 1.6% in 2025, mainly due to stronger investments and a lower negative contribution of net exports.&nbsp;</p>

<p>The bank also expects Romania's twin deficit to narrow slightly but in line with the government's expectations/targets. Rate cuts are possible in H2, with the magnitude depending on risks.</p>

<p>The bank's analysts also see the fiscal deficit at 7.0% of GDP in 2025 (in line with the government's target), with upside risks related to the absorption of EU funds.&nbsp;</p>

<p>PNRR renegotiations are of key importance, ING warns (because they may improve absorption). A lower-than-expected performance in EU funds absorption could either boost the deficit (as some investment projects will need to be financed from the national budget) or simply lead to some investments not being delivered.</p>

<p>As regards the current account deficit, ING expects it to remain elevated in 2025 as well, improving slightly from &nbsp;-8.2% of GDP in 2024 to -7.4% of GDP in 2025.</p>

<p>On the trade deficit, even with moderating private consumption growth, corrections will be marginal and could even be non-existent should the ambitious investment plans laid out in the 2025 budget materialise.</p>

<p>As regards inflation, it is seen at 4.8% at the end of the year (+5.0% y/y on average).&nbsp;</p>

<p>Under ING's baseline scenario, the central bank will deliver 50bp of rate cuts in the second half of the year, with risks tilted towards less easing and more policy space preservation in the face of both internal and external risks.</p>

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

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