Real appreciation of Romanian leu inflates nominal GDP and fuels external deficits
<p>Romania’s nominal GDP has reached EUR 354 billion in 2024 and EUR 358 billion in the four quarters to March 2025, nearly tripling from EUR 125 billion in 2009. While often cited as evidence of rapid economic expansion, this 182% increase over 15 years significantly overstates the country’s real economic progress, according to our calculations.</p>

<p>The headline figure, consistent with an average nominal growth of 7.2% per year, is heavily influenced by external factors—most notably eurozone inflation and the real appreciation of the Romanian leu. According to calculations based on GDP deflators, euro area prices rose by 35.5% over the 15-year period, while the leu strengthened by a cumulative 41.5% in real terms against the euro.</p>

<p>When these effects are removed, Romania’s real GDP growth over the same 15-year period amounts to 47.6%, representing an average annual increase of 2.6%—a significant yet considerably more moderate pace.</p>

<p>The leu’s real appreciation has been especially pronounced in recent years, rising by 18.5% over the past three years alone: 4.5% in 2022, 7.3% in 2023, and 4.6% in 2024. This trend has been driven not by consistent inflows of foreign direct investments (as was the case in 2005-2007) but by substantial external borrowing to cover budget deficits. The transfers under the Cohesion and Resilience facilities have added upward pressure on the leu over the past 15 years despite the incomplete absorption of total budgets.</p>

<p>These inflows have supported currency strength but also contributed to Romania’s growing external imbalances. Some 7.5% of Romania’s demand for consumption and investments in Q1 2025 was covered by net imports.</p>

<p>The apparent surge in nominal GDP, while useful for benchmarking fiscal ratios and budget planning, masks the relatively modest pace of Romania’s real economic advancement and reflects the structural impact of financial and institutional inflows on the exchange rate and trade balance.</p>

<p>In four quarters to March 2025, Romania’s GDP advanced by only 0.5% y/y – while the nominal figure expressed in euros surged by +8.5% y/y.</p>

<p>(Photo: <a href="https://www.dreamstime.com/" rel="noopener" target="_blank">Rochu2008/ Dreamstime</a>)</p>

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