S&P confirms Romania's rating at "BBB minus" with negative outlook, but reduced growth estimates

 The financial rating agency S&P Global Ratings confirmed, on Friday, the ratings for Romania's long-term and short-term debt, at "BBB minus/A-3", the associated outlook being "negative", informs a press release from S&P.According to the rating agency, despite the slowdown in economic growth and the effects of the Middle East war on fuel prices, the government coalition in Bucharest will make progress towards implementing planned fiscal measures to bring the overall budget deficit to 5.5% of GDP in 2027, compared to 9.4% of GDP in 2024.Although the parties that make up the governing coalition disagree on some specific measures, the harshest fiscal measures, including the increase in value-added tax (VAT) and the freeze of pensions and public sector salaries, are already in force. We now expect Romania's economy to face near stagnation in 2026, as fiscal consolidation, the erosion of real wages and rising energy prices put pressure on private consumption, S&P said in a release.S&P analysts expect the Romanian economy to grow by just 0.25% this year, due to the negative carryover from 2025, a strong negative fiscal impulse from budget consolidation, reduced private consumption, along with rising oil and commodity prices related to geopolitical instability.We forecast that, in the period 2027-2029, growth will return to 2.5%, driven by sustained infrastructure investment, a less restrictive fiscal stance, a recovery in consumption, improving external demand and the efficient and timely use of Next Generation EU funds, the analysts said.S&P also expects Romania's government deficit to narrow to 6.5% of GDP in 2026 and 5.5% of GDP in 2027, compared to a deficit of 7.7% of GDP in 2025. According to the rating agency's analysts, Romania's 2026 budget is a commitment to continued fiscal consolidation through expenditure control, administrative improvements and a wage and pension freeze. However, political and implementation risks persist, stemming from potential legal challenges to the budget's adoption and persistent vulnerabilities related to the efficiency of tax collection and the reliance on successful administrative reforms. In addition, following the energy price shocks, the government has implemented some support measures for the transport and agriculture sectors, S&P analysts warn.The negative outlook reflects our view that, despite efforts, implementation risks related to Romania's public finance consolidation will remain elevated in the coming years. The negative outlook also reflects Romania's vulnerability to increasing external risks in global energy markets, as the fiscal position and balance of payments under pressure leave little room to absorb prolonged external shocks, the rating agency's analysts emphasize.S&P warns that it could downgrade Romania in the next two years if the fiscal consolidation trajectory deviates significantly from expectations, which could happen if the government's consolidation measures are insufficient or if low economic growth hinders their effectiveness. S&P could also consider a downgrade if external pressures intensify, for example through a more severe or prolonged disruption of the energy market due to the Middle East war that would derail Romania's medium-term inflation expectations.On the other hand, S&P could upgrade the outlook associated with Romania's rating to "stable" if external and fiscal deficits were to be substantially reduced, supported by a return to economic growth.