GDP growth slows in Q2 as exports swing into contraction

GDP reading: A second release confirmed that GDP growth moderated to 0.1% on a seasonally adjusted quarter-on-quarter basis in the second quarter from 0.5% in the first quarter, in line with market expectations. On an annual basis, economic growth waned markedly to 0.8% in Q2, compared to the previous quarter's 2.2% expansion and marking the worst reading since Q4 2020.

Drivers: On the domestic front, private consumption growth hit an over-one-year high of 3.5% in the second quarter, picking up from the first quarter's 0.9%. Moreover, public spending rebounded, growing 6.3% in Q2 (Q1: -6.5% s.a. qoq). Fixed investment also bounced back by 0.1% in Q2, contrasting the 2.0% decrease logged in the prior quarter. On the external front, exports of goods and services contracted by 1.8% on a seasonally adjusted quarterly basis in Q2 (Q1: +1.2% s.a. qoq) and imports of goods and services growth waned to 2.1% in Q2 (Q1: +2.4% s.a. qoq).

GDP outlook: Looking ahead, our panelists expect GDP growth to surpass 2023’s level this year. Private consumption will remain the key driver of growth, supported by lower inflation, while a rebound in exports should provide an additional tailwind. On the other hand, weaker growth in both public spending and fixed investment will drag on the overall performance. Delayed absorption of EU funds and weaker-than-expected additional funds inflows are downside risks, while the evolution of the country’s fiscal deficit is a crucial factor to monitor.

Panelist insight: Commenting on the release, Vlad Ionita, analyst at Erste Bank, stated: “Looking ahead, net exports should be the main focus point for the GDP growth this year. Consumption is in good shape supported by strong nominal wage growth, lower inflation, and high employment. But that seems to be both a blessing and a curse for growth because most of the items that are being bought come from import. Exports are also in quite a bad shape as external demand remains unfavourable, especially looking at the Euro Zone, and more specifically Germany, which is the most important trading partner. Without a meaningful improvement on the exports side, Romania’s growth this year might disappoint.”

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