Central Bank: Romania's economic growth would remain subdued in 2025-2026

Romania's economic growth would remain subdued in 2025-2026, given the implementation of the fiscal consolidation packages and the sizeable short-term rise in the annual inflation rate, and also amid the gradual recovery of external demand and the use of Next Generation EU funds, reads the minutes of the monetary policy meeting of the National Bank of Romania (BNR) Board of August 8, 2025."Turning to the future cyclical position of the economy, Board members showed that, according to the new assessments, economic growth would remain subdued in 2025-2026, given the implementation of the fiscal consolidation packages and the sizeable short-term rise in the annual inflation rate - likely to weigh on household real disposable income -, but also amid the gradual recovery of external demand and the use of Next Generation EU funds. The prospects would make likely a relatively swift widening of the aggregate demand deficit until the end of next year, and much more pronounced than previously envisaged, followed only by a mild narrowing in 2027 H1, Board members remarked."At that juncture, household consumption would likely moderate its growth in the 2025-2026 period compared with 2024, while gross fixed capital formation would become again in 2025 and then remain the main driver of economic growth in 2026.Moreover, it was noted that, in correlation with the assumed fiscal policy stance, net exports would probably exert a significantly lower contractionary impact in 2025, which would become slightly expansionary again in 2026, amid the narrowing until closing of the gap between the growth rate of the economies of Romania's main trading partners and that of domestic absorption.Against that background, after having risen significantly as a share in GDP in 2024, the current account deficit would witness a downward correction during 2025-2026, relatively sharper in 2026, yet it would stay well above European standards over the projection horizon. Thus, it would continue to represent a major vulnerability and induce risks to inflation, the sovereign risk premium and, ultimately, to economic growth sustainability, Board members underlined.At the same time, it was shown that uncertainties were further associated with the measures likely to be adopted in the future in order to place the budget deficit on a sustainable downward path, in line with the National Medium-Term Fiscal-Structural Plan agreed with the European Commission, as well as with the excessive deficit procedure.Additionally, high uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, continued to arise from the external environment, given the war in Ukraine and the Middle East situation, but especially the global trade tensions, affecting the developments in the global economy and in international trade, as well as amid the effects potentially generated by the US-EU trade agreement."Board members insisted again on the importance of absorbing and making the most of EU funds, especially those under the Next Generation EU programme, which were essential at the current juncture for partly counterbalancing the contractionary effects of budget consolidation and of geopolitical and trade conflicts worldwide, as well as for carrying out the necessary structural reforms, energy transition included, but also for enhancing the growth potential and strengthening the resilience of the Romanian economy."Board members were of the unanimous opinion that the analysed context overall warranted a policy rate status-quo, with a view to ensuring and maintaining price stability over the medium term, in a manner conducive to achieving sustainable economic growth.On August 8, the BNR Board unanimously decided to keep the monetary policy rate at 6.50%. Moreover, it decided to leave unchanged the lending (Lombard) facility rate at 7.50% and the deposit facility rate at 5.50%. Furthermore, the NBR Board unanimously decided to keep the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.