EBRD's 2025 economic growth forecast for Romania revised downwards to 1.8 pct

The European Bank for Reconstruction and Development (EBRD) has significantly revised its estimates on the evolution of the Romanian economy both in 2024 and 2025, forecasting that the growth rate will rebound close to its potential only in 2026, according to the latest regional economic prospects report released on Thursday by the international financial institution.According to the EBRD's latest forecasts, Romania's GDP advanced just 0.7 percent last year, half the initial estimate of 1.4 percent, and is expected to rebound at 1.8 percent this year, 0.8 percentage points less than the estimate of 2.6 percent advanced in September."Economic growth significantly slowed down in 2024 even as private consumption grew strongly on the back of real wage growth of around 8 percent, which led to a significant widening of the trade deficit. (...) Real GDP growth is expected to recover, albeit at a lower level than previously estimated, to around 1.8 percent, given the pressure to reduce the government deficit in a difficult domestic and external economic context. In 2026, growth is forecast to return towards its potential level, at 2.4 percent, assuming renewed structural reform efforts unlock EU funds disbursement and foreign demand recovers," the EBRD report said.Overall, the EBRD has downwards revised its growth forecasts for the economies it invests in to 3.2 percent this year, 0.3 percentage points lower than it estimated in September 2024. This revision is mainly the result of weaker external demand in Central Europe, the Baltic states and the southeastern EU countries, Romania included, and also reflects the ongoing impact of conflicts and the slow pace of reforms in the southern and eastern Mediterranean.The EBRD report released on Thursday draws attention to the uncertainties arising from the possible U.S. tariff increases on imports and retaliatory measures adopted by trading partners. A scenario according to which the U.S. raises tariffs on all imports by 10 percentage points could reduce GDP in the EBRD regions by 0.1 - 0.2 percent over the medium term. Also, the EBRD report shows that Bulgaria, Slovenia and Romania are the most exposed to the recently announced increases in U.S. tariffs on steel and aluminium."Taking the volumes of existing exports to the U.S. and the differing elasticities of import demand for individual products into account, a 25 percent tariff could translate into a reduction of GDP up to 0.03 percent in Bulgaria, Slovenia and Romania," the EBRD report notes.The international financial institution draws attention to the fact that inflation across EBRD regions has decreased, but even so remains more than one percentage point above the pre-pandemic average, with price pressures being stimulated by drivers such as relaxed fiscal policies and rapid wage growth. "While inflation has dropped notably, the sources of inflationary pressures have shifted. Fiscal policy and wage dynamics now play a much greater role, and the path ahead requires careful policy calibration to ensure a stable growth trajectory," says the EBRD's Chief Economist Beata Javorcik.The EBRD is a major institutional investor in Romania and to date the organization has invested almost 11.5 billion euros in 550 projects. A significant share of its financing supports private sector development, sustainability and innovation.