Romania’s economy is slowing down: causes and implications
It is not a secret anymore that Romania's economic situation is currently not at all comfortable.
Corina Cristea, 12.12.2025, 14:00
It is not a secret anymore that Romania’s economic situation is currently not at all comfortable. Neither for the population forced to go through a period of high inflation – still the highest in the Union, nor for entrepreneurs, who point the finger at the same inflationary pressures and say that economic and geopolitical instability affects confidence in the future of businesses and causes them to be more cautious about investments, nor for the government that must find viable solutions in an equation with so many variables. As difficult as the solution is, the reason for this situation is as banal as it is: the decrease in consumption, which in recent years has proven to be the main engine of economic growth, in the context of inflation, tax and excise increases this year. All this, against the backdrop of a very large budget deficit that the country has been facing for several years now. Data shows that inflation in Romania in October was over three times higher than the EU average, and the Central Bank in Bucharest anticipates rising inflation also at the end of this year, especially due to the liberalization of energy prices and the VAT increase.
Cristian Păun, a university professor at the Academy of Economic Studies in Bucharest explains: “Certainly, in the first months of the year, the cumulative, annual inflation will remain high, because we have this base effect that appeared in August. So, until about July-August the situation will remain the same, we will always see high inflation, because we will include what happened in the middle of this year. If at the beginning of the year we start with tax increases again, we will certainly see other effects in prices. For now, Romania remains a country with high inflation. But this inflation is added to the inflation of previous years, it is a tax on tax and Romanians, indeed, those with very low incomes, are the most vulnerable in front of this phenomenon. The situation in Romania will change a little, at least the standard of living of Romanians will be strongly affected.”
The European Commission’s autumn forecasts show that Romania’s economy is entering a period of slow growth for the next two years, amid austerity measures adopted to reduce the budget deficit, the largest in the European Union. Brussels said, however, that these measures, considered essential for stabilizing public finances, will lead to healthy and visible economic growth from 2027. In the meantime, companies and the population will be affected by austerity next year, when economic growth could be modest, of only one percent. Financial analysts in Bucharest also expect an economic growth of one percent or even less. Some of them do not rule out even a recession, shows a survey conducted by the non-profit organization CFA Romania, which brings together specialists in the field.
According to the analysis, inflation is expected to subside next year and reach 6% by the end of 2026, down from 9.8% in October this year. The budget deficit could also exceed 8.5% of the GDP in 2025 and be reduced next year, in the most realistic scenario, to only 7% of the GDP. In his analysis, the National Bank Governor Mugur Isărescu has recently expressed confidence that, after negative growth in the third quarter, the Romanian economy will not register two consecutive quarters of such growth.
Here is again university professor Cristian Păun with details: “According to the technical definition, if you have two consecutive quarters in which your economy declines in real terms, it is called a recession. We already have one quarter – the third quarter. Probably for the fourth quarter, they rely on this period of winter holidays, on consumption during this period. But, on the other hand, it must be said that in this fourth quarter, the economy in the agricultural area is stagnating, we don’t really have much added value in agriculture there in the winter. Likewise, we don’t have much added value in constructions in the winter, which means that at least from the two directions we will have less added value, less GDP for the third and fourth quarters and for the first quarter, respectively. Even if we don’t have a technical recession, economic growth will probably not be explosive, we’ll be somewhere at around 1%, 1 and a half percent GDP growth. That’s about a third of what we were expecting in terms of growth when we made the budget at the beginning of the year. It means, after all, that we have a situation called stagflation in the economy, it’s stagnation doubled by inflation, that is, for many economic sectors we don’t see an increase in orders, on the contrary, sales decrease, orders decrease and then employers can’t really increase wages in line with inflation.”
That is, according to university professor Cristian Păun, at the level of the economy, especially the private economy and private sector employees, we will see a significant decrease in purchasing power in the coming period. (LS)
