Key Measures in the Austerity Package

• VAT Increases and Restructuring: The value-added tax system will be simplified from three thresholds to two, resulting in a general increase in the VAT rate. Most reduced rates, except for food and medicine, will be raised to 19%. The VAT on firewood and other energy products will rise from 5% to 9%.
• Higher Excise Duties and New Taxes: Excise duties on fuel and alcohol will increase. New taxes will be introduced on gambling and certain financial activities, including a tax on gambling winnings and potentially on bank capital.
• Public Sector Cuts: The government plans to reduce public sector employment by 20%, resulting in the loss of at least 167,000 jobs. Bonuses and allowances for public employees will be limited, with performance-based criteria for any remaining bonuses. The boards of state-owned companies will see both their numbers and allowances reduced.
• Wage and Pension Freeze: Public sector wages and pensions will be frozen until the end of 2026. The scholarship system for students will be revised, with many scholarships set to be cut or restructured.
• Elimination of Tax Exemptions: Tax exemptions and incentives for the IT, construction, agriculture, and food industries will be eliminated. A new 1% tax on the value of all buildings owned by companies will be introduced, impacting a wide range of businesses.
• Enhanced Revenue Collection: The government will intensify efforts to improve tax collection and combat tax evasion, to eliminate exceptions in the tax system. There is also consideration for raising the corporate and dividend tax rates from 10% to 16%.
• Targeted Social Support: While general pension indexation is postponed, those with the lowest pensions may receive one-off aid, depending on budget constraints in 2025.
• Investment Prioritisation: Public investment projects will be re-evaluated, prioritising those that increase exports, reduce imports, and generate added value. The government aims to maximise access to European funds, especially from the National Recovery and Resilience Plan.

Romania’s budget deficit has reached unprecedented levels, significantly exceeding the European Union’s recommendations. The government views these austerity measures as essential to prevent an economic crisis, restore investor confidence, and secure continued access to EU development funds. The package is designed to balance the budget through a combination of spending cuts and increased revenue, while also improving the country’s ability to absorb European funds.

Public and Political Reaction

The austerity measures have already sparked protests among public sector employees and drawn criticism from opposition parties. Many argue that the burden is being placed on ordinary citizens rather than on political elites or privileged groups. Critics claim the new taxes and spending cuts will disproportionately affect those already struggling with rising costs and economic uncertainty.

Romania’s austerity drive is poised to significantly impact the country’s political and economic landscape in the years to come. With primary elections on the horizon, the success or failure of these measures will have significant consequences for Romania’s future stability and growth. The coming months will test both the resilience of the Romanian public and the government’s ability to implement reforms in the face of mounting social discontent.

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• to cut the monetary policy rate to 6.75 percent per annum from 7.00 percent per annum starting 8 July 2024, the first time in 15 months that Romania’s National Bank has cut the monetary policy rate.
• to lower the lending (Lombard) facility rate to 7.75 percent per annum from 8.00 percent per annum and the deposit facility rate to 5.75 percent per annum from 6.00 percent per annum;
• to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

The annual inflation rate saw a faster decline in the first two months of 2024 Q2, falling to 5.12 percent in May, below the forecast, from 6.61 percent in March. This was mainly due to the notable drop in energy prices, especially natural gas prices, following the legislative changes implemented in April and the further deceleration in the growth rate of food prices.

In line with forecasts, the annual adjusted CORE2 inflation rate continued to decrease gradually to 6.3 percent in May from 7.1 percent in March 2024. Behind the deceleration stood, during this period, disinflationary base effects and corrections of agri-food commodity prices. Additional influences stemmed from the decreasing dynamics of import prices and short-term inflation expectations re-embarking on a slight downtrend. A moderate opposite impact had the new increases in unit labour costs recorded in the first months of 2024, which were passed through, at least in part, into the prices of some goods and services, among other things, amid a robust consumer demand that increased strongly in April, the National Bank of Romania’s specialists mention in their latest press release.

The annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP—inflation indicator for the EU Member States) decreased to 5.8 percent in May 2024 from 6.7 percent in March 2024. At the same time, the average annual CPI inflation rate and the average annual HICP inflation rate decreased in May to 7.6 percent from 8.5 percent and 8.3 percent, respectively, in March 2024.

In 2024 Q1, economic activity expanded by 0.4 percent, to a lower extent than anticipated, after its 0.6 percent contraction in 2023 Q4. This makes it likely that excess aggregate demand further narrowed over this period, contrary to expectations.

Moreover, annual GDP growth contracted markedly in 2024 Q1 to 0.1 percent from 3.0 percent in the previous three months. The decline was driven this time round mainly by gross fixed capital formation, whose annual dynamics plummeted from the very high two-digit level seen in 2023 Q4. Household consumption continued to witness faster annual growth.

Net exports exerted a more considerable contractionary influence in 2024 Q1 against the backdrop of a slight pick-up in the differential between the positive dynamics in the import volume of goods and services and the change in the export volume, which remained in negative territory. However, the annual growth rate of the trade deficit remained unchanged. At the same time, the current account decreased considerably from the previous quarter, given, among other things, the enormously faster increase in the secondary income surplus during this period, mainly due to inflows of EU funds to the current account.

The latest data and analyses point to a notable quarter-on-quarter economic growth in 2024 Q2, visibly more robust than previously anticipated, implying a marked step-up in the annual GDP dynamics.

Thus, in April 2024, the annual growth rate of retail sales and that of motor vehicles and motorcycle sales surged compared to the 2024 Q1 averages, industrial output posted a strong revival, while the dynamics in the volume of construction works climbed again to a two-digit level, after falling to a significant negative value in the first three months of 2024 overall. However, the annual change in the imports of goods and services posted a notably more significant positive differential with that in exports, given its relatively more robust increase reported in April. Consequently, the trade deficit recorded a significantly faster deepening in annual terms. In contrast, the current account deficit doubled versus the same year-earlier period, among other things, amid the worsening of the primary and secondary income balances.

The National Bank of Romania’s report also mentions that looking at the labour market, in April 2024, the number of employees economy-wide resumed its monthly increase at a swift pace, while the ILO unemployment rate advanced only slightly in April-May to 5.4 percent, remaining below the average 5.6 percent level seen over the last two quarters of the previous year. The two-digit annual growth rate of the nominal gross wage continued to rise in the first three months of 2024 as a whole, remaining unchanged in April, while the dynamics of unit labour costs in the industry were further particularly elevated in 2024 Q1 before posting a sharp decline in April, albeit mainly owing to a calendar effect. At the same time, employment intentions over the very short horizon followed a steeper upward trend in Q2 overall, their substantive drop in June notwithstanding, while the labour shortage reported by companies widened again quarter on quarter, according to the latest surveys.

The central interbank money market rates remained stable in May and then slightly declined. Long-term yields on government securities witnessed a moderate downward adjustment in mid-Q2 but climbed and stuck to the higher readings seen in April. This occurred, among other things, amid the fluctuation of investor expectations on the outlook for the Fed’s interest rate and given the political events in Europe, which entailed shifts in global financial market sentiment and the risk perception towards the region. Against this background, the EUR/RON exchange rate stayed in May-June at the higher levels it had returned to in the second part of April. 

Another significant observation was that the annual growth rate of credit to the private sector grew to 5.8 percent in April after falling to 4.7 percent in March. In May, it remained relatively steady at 5.7 percent, as the domestic currency component continued to accelerate its rate of increase during this period, and the dynamics of foreign currency credit re-entered a mildly upward, albeit fluctuating path. Against this backdrop, the share of leu-denominated loans in credit to the private sector narrowed to 68.8 percent in May from 68.9 percent in March 2024. 

According to current assessments, the annual inflation rate will decline further over the following months on a significantly lower path than the May 2024 medium-term forecast. This is primarily due to base effects and legislative changes in the energy field, as well as amid the deceleration in import price growth and the gradual downward adjustment of short-term inflation expectations.

Heightened uncertainties and risks stemming from the future fiscal and income policy stance, given on the one hand, the budget execution in the first five months of the year, the public sector wage dynamics and the full impact of the new law on pensions, and on the other hand the fiscal and budgetary measures that could be implemented in the future to carry on budget consolidation, among other things amid the excessive deficit procedure and the conditionalities attached to other agreements signed with the EC. The economy’s labour market conditions and wage dynamics also remain a source of sizeable uncertainties and risks. Moreover, significant uncertainties are associated with the impact presumed to be exerted on natural gas and electricity prices by the recent legislative changes and the evolution of crude oil prices.

Uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, also continue to arise from the war in Ukraine and the Middle East conflict, as well as from the economic performance in Europe, particularly in Germany. Furthermore, the absorption of EU funds, especially those under the Next Generation EU programme, is conditional on fulfilling strict milestones and targets. However, this is essential for carrying out the necessary structural reforms, including energy transition and counterbalancing, at least in part, the contractionary impact of geopolitical conflicts.

According to the economists of the National Bank of Romania, the ECB’s and the Fed’s prospective monetary policy stances and the conduct of central banks in the region are also relevant.

Considering the latest available data and the prospects for the annual inflation rate to decline further over the following months, on a significantly lower path than previously anticipated, but also in light of the still elevated uncertainty, the NBR Board decided in the meeting held on Friday, July 5, 2024, to cut the monetary policy rate to 6.75 percent per annum from 7.00 percent per annum starting 8 July 2024. Moreover, it decided to lower the lending (Lombard) facility rate to 7.75 percent per annum from 8.00 percent per annum and the deposit facility rate to 5.75 percent per annum from 6.00 percent per annum. Furthermore, the NBR Board decided to keep the existing minimum reserve requirement ratios on credit institutions’ leu- and foreign currency-denominated liabilities.

The NBR Board’s decisions aim to ensure and maintain price stability over the medium term in a manner conducive to achieving sustainable economic growth. The NBR Board reiterates that, at the current juncture, the balanced macroeconomic policy mix and the implementation of structural reforms, as by using EU funds to foster the growth potential over the long term, are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand adverse developments.

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Intesa Sanpaolo Bank, the Romanian subsidiary of the Intesa Sanpaolo Group, was selected by the Bucharest City Hall following an auction for contracting a loan of 150 million lei (EUR 30 million) to finance several public investments.

We support the Capital City Hall in this initiative to increase the quality of public transport in Bucharest and reduce the impact on the environment in Bucharest. We are convinced that this project will bring significant benefits and will contribute to the consolidation of local infrastructure and to the increase of the quality of life for the inhabitants of the Capital.

Vlad Ponta, Deputy General Manager and Head of the Corporate Division of Intesa Sanpaolo Bank Romania.

The loan belongs to the category of green financing. It will be used to co-finance the project “Purchase of less polluting means of transport needed from a public place of public passenger transport in the Municipality of Bucharest,” which is part of a series of vital investments for the city, with an accent. especially on urban mobility and reducing environmental impact.

The funds granted will be used to build an area of 100 autonomous trolleybuses, an essential step towards modernizing and creating the city’s public transport infrastructure.

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In the heart of Romania, nestled within the Apuseni Mountains, lies Rosia Montana, synonymous with vast untapped wealth and environmental controversy. Known for harbouring the largest gold deposits in Europe, Rosia Montana has sparked debates, dreams, and disputes that reach far beyond its geographical confines.

Rosia Montana is now the subject of a civil process between Romania and Rosia Montana Gold Corporation.

The Canadian company Gabriel Resources is demanding compensation of up to 6.6 billion USD (30 billion RON) from the Romanian state for allegedly blocking its mining project in Roșia Montana. Sources say that the Romanian Government expects to lose the procedures and to pay around 2.2 billion USD to RMGC.

The trial between the Romanian state and Gabriel Resources occurred at the Arbitration Court of the Center for the Settlement of Investment Disputes (ICSID) in Washington and started in 2015.

Rosia Montana’s gold reserves have been a beacon for miners for over two millennia. Ancient Romans excavated the area extensively, leaving behind a network of tunnels and the scars of their early engineering feats. However, the modern era’s technological advancements and soaring gold prices have brought Rosia Montana back into the limelight.

According to estimates from Gabriel Resources, the Canadian mining company that has sought to develop the Rosia Montana project since the late 1990s, the site holds approximately 314 tons of gold and 1,500 tons of silver. This vast treasure, buried beneath the mountain’s verdant slopes, is valued at tens of billions of dollars, fluctuating with the volatile prices of precious metals on the global market.

The value of gold alone today amounts to almost 19 billion euros, adding more than one billion euros for silver, according to Defapt.ro.

The proposed mining project, however, has been mired in controversy. Environmentalists, historians, and a significant portion of the Romanian public have raised concerns about the potential ecological damage and the irreversible destruction of cultural heritage sites. Rosia Montana is rich in gold and a historical treasure trove, housing ancient Roman mining galleries and artifacts that tell the tale of Europe’s mining history.

The debate over Rosia Montana is a microcosm of a more significant global dilemma: the balance between economic development and environmental preservation. Proponents of the mining project argue that it could bring significant economic benefits to Romania, including job creation and substantial tax revenues. Critics, however, warn of the environmental costs, including using cyanide in gold extraction, which poses a severe risk to the region’s water sources and biodiversity.

The Romanian government has found itself at a crossroads, navigating between the allure of economic gain and the responsibility of safeguarding its environmental and historical legacy. Despite the potential wealth beneath Rosia Montana, the project remains stalled, a testament to modern society’s complex interplay of economic, environmental, and cultural values.

As the debate rages on, Rosia Montana continues to hold its secrets. This golden enigma challenges us to reconsider our values and the legacy we wish to leave for future generations. The question remains: can a compromise be found that honours both the economic potential and the environmental and cultural integrity of Rosia Montana? Only time will tell, but the story of Rosia Montana serves as a poignant reminder of the dilemmas faced in an era of finite resources and infinite desires.

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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.

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The preparation phase will start in November and will initially last two years. It will involve finalizing the digital euro rulebook and selecting providers that could develop a digital euro platform and infrastructure.

We need to prepare our currency for the future. We envisage a digital euro as a digital form of cash that can be used for all digital payments, free of charge, and meets the highest privacy standards. It would coexist alongside physical cash, always available, leaving no one behind.

Christine Lagarde, President of the ECB

As the European Central Bank announced, users could access digital euro services via their payment service provider’s proprietary app and online interface or a digital euro app provided by the Eurosystem. People without access to a bank account or digital devices could also pay with digital euros, for example, by using a card provided by a public body such as a post office. Users could exchange digital euros for cash or vice versa at cash machines.

CBDCs are highly controversial, and skeptics say they will only enslave the population even more. The main concern is that once controlled by the central governing bodies, digital currencies will offer authorities all the tools to know where and how you spend your money and limit your access to those funds if they consider it appropriate. This is why a large percentage of the population still uses cash and has decided to use cash in personal transactions.

On the other hand, the ECB tries to address these concerns by saying that the digital Euro will offer users the highest level of privacy.

We would never have access to or store your personal data, providing the highest level of privacy. It would be almost like using cash regarding privacy standards when paying offline.

European Central Bank on the privacy offered by the digital Euro

China, the most advanced country in digital currency, pushed forward its CBDC when it launched the digital Yuan in 2022, called e-CNY. Transactions in this digital currency reached USD 300 billion in equivalent, the Chinese authorities announced recently, which is quite impressive.

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More than 80,000 companies in Romania were in difficulty, in various stages of insolvency, deletion, suspension of activity or dissolution, at the end of August; among the leading causes of the record number recorded being the low capitalization of the business environment and the evolution of inflation, the Sierra Quadrant analysis show.

Moreover, from the analysis of Sierra Quadrant, it appears that more and more Romanian companies are choosing to restructure their businesses within complex projects to optimize logistic and financial flows, a signal that the business environment is preparing for a brutal winter and year 2024 full of uncertainty.

There are more and more companies that hesitate to open new business lines, invest in the development of new partnerships, offer supplier credit, and wait for better times. This phenomenon of disintermediation became even more accentuated with the discussions about taxation, about the increase of taxes, which came to put gas on the fire of investors’ fears.

For 2024, in fiscal changes and uncertainty that tends to intensify, Sierra Quadrant analysts estimate that the economy will operate with the handbrake on.

In the coming year, business people will bet perhaps more than ever on securing business lines, on developing business partnerships with solid, serious, reliable companies. In the conditions where the financial blockage will continue to be at high levels, and financing costs will increase, developing predictable businesses, with reliable partners, will be fundamental for the evolution of the business in a difficult year, with high inflation and with an acute lack of predictability.

Ovidiu Neacșu., Sierra Quadrant

With sky-rocketing inflation and with the Socialists raising taxes in Romania, the economic environment is not the most attractive in the region. This makes the Romanian entrepreneurs struggle to survive the current difficult times and the more difficult times ahead.

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With each episode, the series also captures local progress through in-depth research, quality journalism, and authentic images that depict a new face of Romania. These empowering stories prove that local communities are a driving force when sustainable solutions and high-impact actions are put to good use.

The central theme in episode one is sustainable cities and communities, while the following five episodes in production focus on other subjects in line with the United Nations Sustainable Development Goals (SDGs), such as reducing social inequalities, responsible production and consumption, innovation in industry and infrastructure, and clean water.

The series’ first episode consists of two case studies: we first meet the residents of Targu Lăpuș, the first town in Romania to have reached a 60% recycling rate, surpassing not only the national – municipal – waste-recycling rate of 13% but also the European average of 49%. Next, the first cooperative community in Romania to provide energy from 100% renewable sources, a proper legacy for future generations.

In addition to the mini-series, the “Romania Unfolds” platform provides access to original editorial content, providing information on impactful, sustainable initiatives, projects, or practices implemented throughout Romania.

The “Romania Unfolds” project is supported by Veolia, a world leader in providing essential services and a champion of ecological transformation.

Through this initiative, Veolia stands by its commitment to become a Champion of Ecological Transformation by providing access to sustainability information and uncovering sustainable solutions capable of mediating the impact of today’s challenges. In this way, we contribute to increasing the educational value within the communities in which we operate. Romania Unfolds uncovers solutions for actions that have a decisive positive impact on the environment. Still, also a bridge future links between communities, academia, industry, and the authorities.

Mădălin Mihailovici, CEO of Veolia Romania

So far, “Romania Unfolds” has brought together 30 sustainability, video production, and communication experts who share the same passion for creating a better future for Romania.

The following five episodes will shed light on different sustainability issues in Romania, empowering and educating society.

Project team of Romania Unfolds

• Veolia Romania: Ramona Dumitru – Communication and Public Affairs Director
• Porter Novelli Romania: Sorina Mihai – Managing Partner, Ana Bălan – Creative & Strategy Director, Tudor Năstase – Senior Art Director & Web Developer, Claudia Cojocariu – Senior Copywriter, Stefany Iova – Creative Planner, Firuța Flutur – Senior Media Relations Consultant.
• Project consultant: Corina Murafa – expert in sustainable policies
• Studio production Stay Sharp: Ovidiu Păun – Director, Iliana Dumitrache – Producer, Cosmin Dogaru – Production Manager, Roxana Cozma – Production Coordinator, Nicolae Anghel – Cinematography Director, Vlad Popescu – DOP Assistant, Diana Radulescu – Editor, Alexandru Yetesey – Editor, Ioan Marian Iacoban – Sound Design, Mix & Master

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In the meeting held today, 8 November 2022, based on the currently available data and assessments, as well as in light of the very elevated uncertainty, the NBR Board decided to increase the monetary policy rate to 6.75 percent per annum from 6.25 percent per annum as of 9 November 2022. Moreover, it decided to raise the lending (Lombard) facility rate to 7.75 percent per annum from 7.25 percent per annum and the deposit facility rate to 5.75 percent per annum from 5.25 percent, as well as to maintain firm control over money market liquidity. Furthermore, the NBR Board decided to keep the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

National Bank of Romania press release

Moreover, the National Bank of Romania addresses the economy’s evolution concerns.

The number of employees in the economy stopped its increase in August, given the cut in the number of personnel in the private sector, while the ILO unemployment rate saw a renewed marginal advance at the end of Q3, after its decrease to 5.1 percent in August. At the same time, at the beginning of Q4, the labour shortage reported by companies remained flat at the lower level reached in the previous months, while hiring intentions for the near-term horizon recovered slightly, but in the context of mixed sectoral developments, probably explained by the very high energy costs, as well as by the uncertainties generated by the war in Ukraine and the related increasingly strict sanctions.

NBR press release

Romania’s economy is struggling to fight double-digit inflation, but the National Bank is doing what is needed, taking one step at a time. By increasing the monetary policy rate, NBR tries to encourage deposits which will further discourage internal consumption and thus, inflation could be slowed down.

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Main predictions of Standard&Poor’s for Romania

S&P expects real GDP growth in Romania to moderate to about 4% over 2023-2025, compared to 6% in 2021-2022. This is a direct consequence of the pandemic, but the agency expects high EU fund inflows to support economic activity.

The stability of the country’s energy supply in the energy crisis is expected to be supported by a substantial share of domestic production.

Also, even if Romania’s fiscal and current account deficits will remain high in 2022, S&P expects them to decline from 2023 onward due to the government’s consolidation efforts and lower domestic demand growth.

Outlook

S&P considers that the stable outlook balances economic risks from the Russia-Ukraine conflict – -mainly in the form of surging inflation and more adverse economic developments in Romania’s main trading partners–and the country’s high twin deficits against the buffers provided by its still-modest stock of external and government debt and incoming EU transfers. Also, S&P experts anticipate that commitments under the EU’s Recovery and Resilience Facility (RRF) will continue to anchor authorities’ commitment to political reforms and fiscal consolidation.

Downside scenario

The agency says it could lower the ratings over the next two years if:

• The government’s medium-term fiscal consolidation efforts prove insufficient, failing to reduce deficits below 4% of GDP sustainably, or if the government’s financing costs increase beyond our expectations; or
• Financing for Romania’s twin deficits was to be increasingly oriented toward debt-creating external flows, perhaps due to lower-than-expected inflows of EU funds.

Upside scenario

At the same time, S&P could raise the ratings if experts see evidence that Romania can sustain high economic growth while the current account deficit (CAD) and the government’s fiscal deficit narrow, indicating the economy’s strengthening productive capacity.

The context of the Russian – Ukrainian conflict

Standard&Poor’s considers that Romania’s economy grew substantially in first-half 2022 despite the Russia-Ukraine war’s indirect impact. The agency expects a 2022 real GDP growth of about 6%, primarily driven by high private consumption.

Meanwhile, high global commodity prices have resulted in surging consumer price inflation (CPI), which experts expect will amount to over 13% in 2022 and almost 9% in 2023, dragging substantially on disposable incomes and, thus, consumption. Also, S&P experts think Romania’s economy will be affected by lower growth in its main trading partners in the EU and diminishing business confidence, which will drag on private sector investments. Positively, the labor market has primarily held up, and unemployment remains close to pre-pandemic levels.

The energy crisis and the Romanian economy

According to Standard&Poor’s, Romania is one of the most self-sufficient countries in energy production. Domestic natural gas production could cover up to 90% of annual consumption. This suggests that Romania has a comparatively low dependence on Russian energy and, therefore, a more favorable position in adapting to disruptions to the European energy supply.

The same experts say that a critical factor determining Romania’s medium-term economic development will be its ability to efficiently use the significant EU financing available under the European Commission’s MFF and RRF framework. EU funds are still available under the 2014-2020 MFF, the incoming 2021-2027 MFF, and the RRF amount to 25%-30% of GDP. The RRF includes €14.2 billion in grants and €14.9 billion in loans, about 10% of the estimated 2022 GDP, and the experts understand that €10 billion of EU funds could be received throughout 2022.

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