Romania: GDP shrinks in the third quarter
Economy enters doldrums for the second time in 2024: A second release revealed that GDP contracted by 0.1% on a seasonally adjusted quarter-on-quarter basis in Q3, falling short of both the preliminary estimate of a flat reading and the 0.1% expansion logged in Q2. The result marked the second decline this year. On an annual basis, GDP contracted to 0.3% in Q3, compared to the previous quarter’s 0.8% expansion and marking the worst reading since Q4 2020.
Domestic demand drags on growth: The quarterly downturn chiefly reflected a deterioration in domestic demand. Household spending contracted 0.5% in Q3 (Q2: +2.8% qoq s.a.), swinging into negative territory for the first time since Q1 2023. Moreover, public consumption declined 1.4% in Q3 (Q2: +2.9% qoq s.a.). In addition, fixed investment nosedived 28.9% in Q3 (Q2: -2.1% qoq s.a.), posting the third negative reading this year and representing a record rate of contraction.
On the external front, exports of goods and services slid at a softer rate of 2.0% in Q3 (Q2: -2.3% qoq s.a.). Meanwhile, imports of goods and services swung into contraction, declining 4.3% in Q3 (Q2: +1.1% qoq s.a.).
Growth to roughly double in 2025: Our panel expects the economy to rebound sharply in Q4. Looking at 2025, our panelists expect GDP growth to nearly double from 2024’s projected figure. Lower interest rates are set to bolster fixed investment. Moreover, recovering EU demand should drive a rebound in exports. That said, private consumption will be hampered by a largely anticipated tax increase amid fiscal consolidation efforts aimed at reducing the budget deficit.
Panelist insight: ING’s Stefan Posea and Valentin Tataru commented:
“For 2025, we have pencilled in an acceleration towards 2.6%. At a technical level, base effects stemming from this year’s low outturn will contribute positively. […] Lower interest rates in the eurozone should limit the downfall of the external sector somewhat, although at this stage our house view is that structural factors will continue to keep European activity in a weak state, at least in the near term. Upside potential could come from a more expansionary fiscal stance in Germany next year, depending on the early election outcome.”
EIU analysts said:
“Investment in public infrastructure will continue to be a bright spot in 2025, owing to inflows of funds under the Next Generation EU programme, assuming no major delays in their disbursement. Following an estimated annual contraction in 2024, we expect a return to positive export growth in 2025 as demand gradually picks up in Romania’s main EU trading partners.”