Romania: Fiscal diet, growth hangover

The Romanian economy is emerging out of a mild recession. The outlook for 2H26 points to a soft patch followed by a gradual recovery in 2027. After disappointing sub-par growth in 2025, we see a mild contraction in 2026 (around -0.3%), mainly driven by depressed consumer demand, as overdue fiscal consolidation has eroded disposable income. The alternative would have been a more painful market-driven correction. We see GDP growth returning towards potential in 2027. Investment backed by EU funds offset to some extent the depressed household consumption, becoming crucial to avoid a deeper and extended recession. Net exports are expected to provide a marginal positive contribution to growth.

Inflation should remain elevated in the short term, after it exceeded 10% in 2Q26, and is projected to decline significantly in 3Q26, on statistical base effects, reaching 5.9% by year-end. We see the inflation outlook for 2027 above the central bank target range.

We expect the NBR to keep the key interest rate at 6.50% throughout 2026, with gradual rate cuts likely to start in 2Q27. Financial markets reflect this outlook, with government bond yields stabilizing around 6.8–6.9% in 2026 and seen grinding lower thereafter.

Overall, the outlook is shaped by fragile domestic demand, persistent inflation, and elevated political and fiscal uncertainties. Investment decisions are subject to credible policy frameworks aimed at dissipating uncertainty and restoring consumer confidence. Preserving the IG sovereign credit rating depends on political stability to reduce the risk of fiscal slippage and eventually cap the upward trend in the debt-to-GDP ratio.

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