EC expects fiscal stimulus to boost Romania's GDP but also public deficit this year and in 2025

Reflecting the discretionary rise in public wages, the pension reform, and the strong public investments and despite the first fiscal corrective package passed in 2023 (with a positive impact of 1% of GDP this year), Romania's budget deficit will rise from 6.6% of GDP last year to 6.9% of GDP this year (ESA terms), according to the European Commission's Spring 2024 Economic Forecast.

Public indebtedness would rise to 50.9% at end-2024, from 48.8% one year earlier, consequently.

Not counting a (much necessary) potential fiscal corrective package, the Commission expects Romania's public deficit to remain stable at 7% of GDP under "unchanged policies" in 2025 and the public indebtedness to hit 53.9% of GDP.

The fiscal stimulus encompassed by the wide public deficits this year, but also private consumption encouraged by expected monetary easing (an assumption recently challenged by the central bank's concerns on persistent inflation) – therefore mostly domestic demand – would result in 3.3% GDP growth this year.

Uncertainty regarding the path and composition of fiscal consolidation measures may dent business sentiment and private investment, bringing the real GDP to around 3.1% in 2025, according to the Commission's Spring 2024 Economic Forecast.

Consistent with the domestic demand's dynamics, the Commission expects the current account (CA) deficit to increase to 7% of GDP at the end of 2024 (from an estimated 6.7% of GDP gap in 2023) and to decrease to 6.6% of GDP at the end of 2025.

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