Banca Transilvania (BVB: TLV), Romania’s largest financial group, has sharply revised down its 2026 economic growth forecast for the country to 0.2%, from 1.67% projected in January, citing weaker-than-expected economic activity, political uncertainty, and rising geopolitical risks.

In its latest monthly economic outlook, the bank’s analysts said the balance of risks remains “strongly tilted to the negative”, warning that Romania entered 2026 from a significantly weaker position than previously believed.

According to the report, Romania’s gross domestic product contracted by 0.2% quarter-on-quarter in seasonally adjusted terms in the first quarter of 2026. Compared with the same period of 2025, GDP fell by 1.5% in the seasonally adjusted series.

“The economy continued to decline sequentially in Q1,” the report stated, adding that the latest data “answers negatively” the question of whether the economy could stabilise at the beginning of the year.

BT Research also warned that the conflict between Iran and Israel could have a substantial indirect impact on Romania through higher energy prices, disruptions to international supply chains, rising transport costs, and tighter financing conditions.

“This combination of cost-push inflation and demand compression creates a stagflationary environment, in which economic growth slows down while prices remain high,” the analysts wrote.

The report noted that heightened geopolitical tensions and increased market volatility are already weighing on consumer and investor confidence. Businesses may delay investment and hiring decisions, while households could increase precautionary savings.

For Romania, where private consumption had already weakened during 2025 and where fiscal consolidation measures are reducing disposable income, these effects could prove more pronounced than in other regional economies, the bank argued.

The analysts also highlighted domestic political risks following the collapse of the government after the no-confidence vote in May. According to the report, prolonged coalition negotiations or delays in implementing fiscal measures could undermine budget discipline, weaken investor confidence, and increase state borrowing costs.

“Romania enters this period with limited fiscal space, high financing needs, and a still fragile growth base,” the report said.

BT Research warned that any “postponement, dilution or reversal” of fiscal consolidation measures could result in higher financing costs, pressure on the exchange rate, and reduced capacity for public investment.

The report concluded that maintaining fiscal discipline remains “essential” despite the political uncertainty, arguing that a credible fiscal strategy is necessary to preserve macroeconomic stability, maintain access to financing, and maximise the absorption of European Union funds.

iulian@romania-insider.com

(Photo source: the company)