Erste Group hopes statistical base and carry-over effects to boost Romania’s economy in 2025
<p>GDP growth is projected to recover to 2.8% y/y in 2025 and 3.4% in 2026, from 0.8% in 2024, under a no-policy-change scenario, aided by statistical base and carry-over effects, Erste Group’s latest macro update on Romania reads, admitting that “the risks are clearly skewed to the downside.”</p>

<p>Erste Group issues a broadly optimistic forecast based on the assumption that political developments are not far from the “business as usual scenario” envisaged before the presidential and parliamentary elections.&nbsp;</p>

<p>“The outlook for 2025 remains blurred,” the report reads, however, on a cautious note.</p>

<p>“In Parliament, the situation is somewhat more stable [than at Presidency where the elections were scrapped],” the report further states.&nbsp;</p>

<p>For some unspecified reasons, Erste Group assumes that the delayed presidential elections will “dampen appetite for addressing the large fiscal deficit until after the new president is elected.” In fact,&nbsp;it is the problematic formation of a ruling coalition and the structure of the potential ruling coalition that “dampens the appetite” for fiscal consolidation. The formation of a ruling majority, pictured by Erste Group as a fait accompli, is the key source of uncertainty and concerns.</p>

<p>The Parliament is summoned for December 20 and the far-right party AUR has already announced plans to initiate the president’s destitution with the help of the other far-right parties that altogether control over 30% of the MP seats. At the same time, the formation of a ruling coalition is advancing at a slow pace.&nbsp;</p>

<p>The four “pro-European, pro-NATO” political parties set informal and high – perhaps too far – targets, such as supporting a joint presidential candidate. Forming a functional government would be a sufficient first step, but even this seems a significant challenge.&nbsp;</p>

<p>The Austrian financial group hopes that even under the “no policy change” scenario, Romania will still be ready to reduce its public deficit from 7.9% of GDP in 2024 to 7.0% of GDP in 2025, in line with the 7-year fiscal consolidation plan agreed with the European Commission. However, the European Commission made clear in November that no policy change scenario would result in no public deficit change – meaning 7.9% of GDP public deficit in 2025.&nbsp;</p>

<p>This will not have a dramatic impact on the public debt, which exceeded the 50%-of-GDP threshold in 2024 and is hedging toward 60% of GDP in the coming years, but on the cost of financing, the country is paid to finance its public deficit and rollover its public debt.</p>

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

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