ING Forecast for Romania in 2024: Struggling to Balance Elections with Fiscal Consolidation

In an analysis published on Tuesday, January 9, ING offered its forecast for Romania 2024 and other countries. The document, named Growth in the Balkans, contains a very straightforward analysis of the main countries in the region. The experts believe Romania will have to balance elections with fiscal consolidation this year.

The release of detailed data for third-quarter 2023 GDP growth, alongside upbeat high-frequency data for the fourth quarter, points to a resilient growth picture in Romania, in experts’ opinion. For 2024, we are likely to see a rebalancing of the growth drivers from investments towards consumption, though the former should still hold on to close to double-digit growth. However, with public wages likely to stay well within double-digit growth and pensions due to be increased by 13.8% starting January 2024 and approximately 22.0% starting September 2024, the private consumption story is likely to show marked improvement. ING maintains its 2024 GDP growth estimate at 2.8%.

Also, the forecast says that the growth story could complicate the National Bank of Romania’s (NBR) decision-making process, as the rising demand, corroborated with a general increase in taxation, could slow the disinflationary process. Nevertheless, ING analysis says it continues to be at the lower end of inflation estimates for 2024, as the experts see December 2024 inflation at 4.7%, with risks to the downside. Also, ING maintains its long-standing view that the NBR will start lowering the key rate in the second quarter, easing 150 bp by the end of 2024.

Lowering the budget gap continues to be the primary headache for Romanian governments, and nothing indicates that this will change anytime soon. First estimates show that the 2023 deficit stood at around 5.7% of GDP, similar to the 2022 level and far from the initial 4.4% target. Moreover, the 2024-2026 fiscal strategy does not envisage a budget deficit near 3.0% of GDP, with 2026 official estimates now at -4.2%. Due to a more favourable redemption schedule, the 2024 financing needs to look better than in 2023. ING says it sees the 5.0% GDP deficit target for 2024 as ambitious but not unrealistic. However, negotiations with the European Commission over the pace of deficit reduction could still bring some changes to the plan.

A super-electoral year is expected in Romania, with European, local, general and presidential elections due to occur within a 6-7-month. The base case is that the current grand socialist-liberal coalition will continue to form the government after the elections. However, the balance of power will likely skew more heavily towards the socialists.

Ratings (Baa3/BBB-/BBB-): ING experts panel continues to see no change in Romania’s investment grade rating for the foreseeable future (around two years). The recent fiscal slippage and announced pension hikes might tilt the risk balance to the downside. Still, it is unlikely to be a game changer as long as Romania’s relationship with the EU (and EU money) remains solid.

We also recommend you read Romania’s Economic Outlook 2024.