"Romania’s economy slowed in 2023, but is expected to accelerate in 2024, although downside risks remain significant," the Commission said in its In-Depth Review 2024 issued on Monday. "According to the Commission Winter 2024 Interim Forecast, economic growth is projected to gradually pick up to around 3% in 2024 and 2025, supported by robust growth in households’ real disposable incomes as inflation continues to decline and financial conditions improve."
The Commission pointed out that the balance of risks to the economic outlook is tilted to the downside as lower than expected growth in Romania’s trading partners, slower disinflation or a more protracted recovery of private consumption, together with delays in the absorption of EU funds, could negatively impact growth.
The country's inflation rates, government deficit and current account deficit are among the highest in the European Union, the Commission noted.
Government deficit was equivalent to 6.3% of GDP in 2023 and is projected to remain large, at 5.3% of GDP in 2024 and 5.1% of GDP in 2025.
Headline inflation declined to 7% at end-2023 from a peak of 14% in 2022, while core inflation remained above 10% last year. The harmonised consumer price index is expected to continue falling, to 5.9% at end-2024 and 3.4% at end-2025, the Commission said.
The current account deficit is projected to stabilise around the 7% mark in the following years. This wide current account deficit is primarily underpinned by Romania's large fiscal deficit, which has not been addressed sufficiently, as per the report.
The unemployment rate in Romania was 5.4% in 2023, and is expected to remain largely unchanged going forward, with jobless rates of 5.2% and 5.3% forecast for 2024 and 2025, respectively.
Romania's net international investment position (NIIP) improved to negative 38% in September 2023 from negative 45% in 2021. This decrease reflects the fact that a large part of Romania's financing is done through non-refundable EU funds, with more than 60% of its current account financing needs being covered by non-debt creating instruments in 2023.
Although government debt inched up to 49.3% of GDP in 2023 from 48.5% of GDP in 2021, Romania has a relatively favourable external debt position, with its private debt dropping to 40% of GDP last year from about 50% of GDP two years prior, the Commission said.
"Overall, Romania has moderate public, private and external debt levels, with household and corporate debt among the lowest in the EU," the EU executive noted.
However, the Commission warned Romania that recent evolutions in wages and prices can impact price competitiveness and should be monitored carefully. According to the report, while minimum wage updates decided by the government on a discretionary basis have led to a reduction in social inequalities and to growth in domestic demand, they can also lead to potential adverse consequences for inflation persistence and external competitiveness.
The Commission predicts a significant drop from the unit labour cost (ULC) ratio of 12.4 registered in Romania last year, to 5.7 in 2024 and 3.7 in 2025.
