Romania Economic Forecast

After picking up in Q4, annual growth likely decelerated in Q1. In January–February, industry contracted at a steeper rate compared to the Q4 average, while retail sales and exports growth slowed. Moreover, inflation remained elevated over the quarter, continuing to pressure real incomes. That said, wages grew more in January–February than in Q4, supporting private consumption. Moreover, a sharp deceleration in producer prices over the same period likely reduced the pressure on manufacturing activity. Turning to Q2, compared to Q1, economic sentiment remained broadly stable in April, and hiring intentions increased slightly. In other news, in April, the government raised its issuance ceiling for foreign debt sold until the end of next year. That said, it said it might issue less foreign debt than earlier anticipated this year due to strong demand for domestic debt.

Inflation moderated to 14.5% in March (February: 15.5%), as lower price pressures for food and non-food goods more than offset higher price pressures in the services sector. Our panelists expect inflation to return to single digits in Q3 this year as demand wanes. That said, rising wages pose an upside risk.