ING Romania expects country's economy to reach 2.6% growth in 2025
<p>ING Bank analysts have revised Romania's GDP growth forecast for 2024 to 1.0% from a previous estimate of 1.3%, citing persistent weak growth and rising risks tied to the country's electoral context.&nbsp;</p>

<p>However, growth is expected to accelerate to 2.6% in 2025, supported by EU-funded investments, wage increases, and Romania's anticipated Schengen accession.</p>

<p>Romania's economic performance has been sluggish, with GDP growth of just 0.9% year-to-date (YTD) in 2023 and third-quarter growth at 1.1%, below expectations.&nbsp;</p>

<p>Public spending surged in the lead-up to elections, but manufacturing, services, and agriculture remain underperforming sectors. Weak domestic production capacity and strong imports also weigh on the growth potential.</p>

<p>ING Bank Romania chief economist Valentin Tătaru highlighted that civil engineering activities, linked to infrastructure investments, outperformed other sectors, signaling some positive momentum. Nevertheless, the IT sector, a key economic driver, has struggled, and drought conditions have exacerbated food inflation pressures.</p>

<p>ING projects inflation at 5.0% in 2024, easing to 4.4% in 2025. However, risks remain tilted to the upside, fuelled by fiscal reforms and external volatility. The National Bank of Romania (BNR) is expected to adopt a cautious approach, with no additional rate cuts until the second quarter of 2025 at the earliest. ING forecasts a 75 basis-point reduction in 2025, bringing the key rate to 5.75%.</p>

<p>Several factors are expected to support economic acceleration in 2025, including base effects, (moderate) real wage gains, and large-scale, EU-funded infrastructure projects, particularly in transport.</p>

<p>Schengen accession is expected to boost trade and business productivity starting in January 2025.</p>

<p>Pension indexation scheduled for early 2025 will further bolster private consumption.</p>

<p>Despite these positives, Romania's structural reliance on imports and European economic weakness remain significant challenges.</p>

<p>Romania's budget deficit is projected to remain high, at 8.0% of GDP in 2024 and 7.0% in 2025. While fiscal reform is necessary to regain market credibility, it poses short-term risks to growth and inflation. Tătaru cautioned that delayed reforms could lead to suboptimal tax measures, exacerbating economic challenges.</p>

<p>Despite these risks, the economist expects long-delayed infrastructure projects to yield productivity gains, potentially boosting business confidence and investment. Romania's strategic location for nearshoring and friendshoring could also offer opportunities in a reshaped global economic landscape.</p>

<p>While fiscal pressures and political uncertainty weigh heavily on the short-term outlook, Romania's longer-term potential lies in its ability to capitalize on EU-backed infrastructure modernization and anticipated gains from Schengen integration. However, effective fiscal management and structural reforms will be critical in unlocking this potential while maintaining market access and investor confidence.</p>

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

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