Economic downturn deepens in Q4 2025

Second GDP release confirms economic downturn: Romania's GDP was down 1.9% on a seasonally adjusted quarter-on-quarter basis in Q4, following a 0.1% contraction in the previous quarter. Q4's reading was the weakest since Q2 2020 and disappointed markets, which had penciled in a softer contraction. In annual terms, GDP contracted 1.5% in Q4, following a 1.4% expansion in the prior quarter. Looking at full-year growth, the economy expanded 0.7% in 2025, marking a deceleration from 2024’s 0.9% growth and the weakest print since 2020’s pandemic-related contraction.

Broad-based slowdown plunges economy into technical recession: Compared to the previous period's data, figures in Q4 worsened for private consumption (-0.3% on a seasonally adjusted quarter-on-quarter basis vs +0.1% in Q3), government consumption (-3.2% vs +1.4% in Q3), fixed investment (0.0% vs +1.3% in Q3), exports of goods and services (-1.4% vs +0.8% in Q3) and imports of goods and services (-2.8% vs +2.7% in Q3). Domestic demand will have been constrained by fiscal consolidation, elevated inflation and some of the highest interest rates in Europe.

Sequential growth to return this year: The economy should rebound in Q1. Looking at 2026 as a whole, GDP growth is seen picking up slightly from 2025, clocking a three-year high. Growth will be driven by investment and net trade, the former supported by EU funds and the government’s commitment to maximizing their absorption. However, weak private spending will likely continue to weigh on overall momentum due to still-high inflation. The conflict in the Middle East poses a downside risk to GDP growth due to its potential implications for inflation, risk sentiment and capital flows.

Panelist insight: On the outlook, analysts at Erste Bank commented: “We keep our forecast of +1.0% GDP growth in 2026. Household consumption is likely to remain subdued through the first half of the year, reflecting still tight financial conditions and lingering real-income pressures. By contrast, we expect investment activity to accelerate, supported by the substantial EU funds available to Romania in 2026. The government appears committed to maximizing the absorption of these resources, which should provide a meaningful boost to capital formation and partially offset the softness in private demand.”

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