January retail sales readings (-9.1% y/y) sent an extremely negative message among analysts, some of whom consider the possibility of a negative economic growth rate for the entire year. The Middle East conflict had already depressed analysts’ expectations, reduced to 0.5% growth this year compared to the government’s 1.0% projection seen as generally realistic previously.

The Middle East conflict, bringing higher energy prices, also deferred analysts’ expectations for a first cut in the monetary policy rate, now seen as flat for the entire year.

"We would be lucky if we had an economic growth of 0.5% this year. Chances are high for a small negative growth for the whole year, and then we will end up with a full-fledged recession – not just a technical one [like we had last year],” CFA Romania president Adrin Codirlasu said, according to Bursa.ro. 

Codirlasu specifically mentioned the January sales reading as a reason for the deterioration of the analysts’ expectations. He said he expected further decline in the retail sales in March – once the car fuel price hike reinforces households’ risk aversion, which will generate further caution in spending. 

Asked when the first indications of the economy entering recession might appear, he stated that the GDP evolution in the first quarter of the year could provide a first signal.

"It is necessary to have data from the first quarter on economic growth. If we have a minus compared to the first quarter of last year, we are probably heading towards a slight recession," Adrian Codirlaşu also said.

Besides the recession, the CFA president expects hawkish monetary policy to prevail for a longer period of time. The association expects headline inflation to rise temporarily above 10% and drop to 7%-8% by the end of the year – versus 3.9% y/y under the central bank’s latest projection before the Middle East conflict. Such figures naturally defer expectations for the first cut of the policy rate (currently at 6.5%), previously expected for H1 or August 2026 at the latest.

"I think the National Bank of Romania (BNR) will not move interest rates at all this year," said Codîrlașu. 

"Maybe if something extraordinarily positive happens in October-November, there will still be the possibility of a reduction, although all our estimates are more towards freezing the interest rate," said analyst Dragoș Cabat.

The CFA president also points out that the EU monetary union could face the issue of raising interest rates this year, due to expectations of higher inflation amid the increase in oil prices, by 50% so far worldwide, and by 40% in gas prices.

iulian@romania-insider.com

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