According to the latest release by the Romanian National Institute of Statistics, the Romanian GDP grew by 0.6% YoY for the seasonally-adjusted data, and by 0.3% YoY for the unadjusted series, as compared to Q1 2024. As a result, the GDP amounted to RON 460bn in Q1 2025. In this short overview, we bring you all the details.
Romania has been a lot in the news lately, mainly due to the drama related to its elections, but also due to the structural challenges that the country has been facing, especially when it comes to its finances. The Romanian Government has consistently run deficits, and with the election of the new Government, one of the main focuses has been on bringing this deficit under control, which they started doing with the recently announced fiscal package, more on which you can read here.
In this environment, GDP growth is also subdued; while higher levels of spending would in the medium-term lead to faster GDP growth, the high levels of deficits recorded in the previous years have meant that this is no longer sustainable. Furthermore, the EU also mandated that Romania has to get its finances under control if it were to receive more funds from various EU funds.
Romanian seasonally-adjusted quarterly YoY GDP development (2010 – Q1 2025, %)
Source: Romanian National Institute of Statistics, InterCapital Research
In Q1 2025, the Romanian GDP grew by 0.6% YoY for the seasonally-adjusted series, and by 0.3% for the seasonally-unadjusted series. In absolute terms, the GDP amounted to RON 460bn in Q1 2025. Looking at the components of GDP growth, final consumption contributed 0.5 p.p. to the overall GDP increase in Q1, gross fixed capital formation contributed 1.1 p.p., while the change in inventories contributed 1.5 p.p. to GDP growth. On the other hand, net exports contributed a 2.8 p.p. decrease to the overall GDP growth, leading to the aforementioned 0.3% increase in the unadjusted series (growth figure contributions available for only the unadjusted series).
In other words, final consumption contributed the least to the growth, with consumption by households increasing, while the consumption by the Government declined. Gross fixed capital formation, i.e., investments, contributed positively to the growth, while the trade deficit, which can be seen in the growth of imports as compared to exports and their contribution to the GDP, continues to grow.
If we look at GDP by sectors, for the seasonally-adjusted series, about half of the sectors contributed to GDP growth with more volume sales, while the other half actually sold less volume. On the other hand, about half of the sectors recorded price increases, but only slight ones, and this refers to the sectors that saw only a minimal drop in volumes sold. On the other hand, other sectors recorded price decreases, which have to a greater extent affected them positively on the volume side.
What’s also positive is that gross fixed capital formation recorded only a 1% decline in the price indices YoY, but recorded a 20% increase in volume, implying more investments are being executed at similar prices to last year. Lastly, both exports and imports have gotten slightly “cheaper”, by 1.5% to 3.5%, but have led to higher volumes of exports and imports.
Overall, the Romanian economy is still lagging behind that of the EU. Further growth in the coming period should remain subdued as the cuts are made throughout the economy, and more taxes are added to reduce the deficit. While this is going on, and it’s unclear how long it will take to “balance the books”, it remains uncertain how the entire Romanian economy would react. Normally, higher taxes reduce personal consumption, which in the environment of higher inflation (5.7% YoY in June 2025), would put even more pressure on either the Government to “find solutions” to both the inflation and its own fiscal problems, but also on employers to continue raising wages, due to said inflation. However, as we have seen many times before, raising wages for inflation usually does lead to more inflation, as employers compensate the higher costs by increasing prices of their products.
Given all of these factors, it remains to be seen if Romania will be able to stabilize its finances and then start growing and converging to the EU average again, as there is still more room to cover in this regard.