Romania Country Report

GDP accelerated to 7% y/y in Q1 from 6.6% y/y one quarter earlier, according to preliminary estimates of the statistical office. The rebound took place despite monetary restraints imposed by a series of interest rates hikes but potential slowdown effects could surface in Q2. Although the labour and financial markets proved sensitive to the new macroeconomic conditions and the foreign trade decelerated in Q1, the main uncertainty and risks come from the government sector. Public spending surged by real 41% y/y and similar growth rates in the rest of the year would push the fiscal deficit to record highs.

The good news continue to come from the private sector, as labour pays are moving close to productivity gains and the country’s external balance is showing signs of improvement, yet from a very unfavourable base. The merchandise foreign trade deficit expanded by 15.8% y/y in Q1, which is still posing risks to the country’s external position but looks far better than the gap widening of about 50% in the past 3 years. In relative terms, it could be safely argued that the trade gap is somewhat stabilising in regard to GDP, which is advancing at a similar nominal rate. The full-year performance will remain strongly dependant on agricultural supplies, however, as one-offs stemming from the low base last year are expected to impact both price and growth indicators this year.