Study: Romania’s Economy in 2025: 0.7% Growth and Slowly Falling Budget Deficit

  The budget deficit and fiscal correction measures were the main themes of 2025 in Romania, in a context marked by a record level of fiscal imbalances: a deficit of 8.65% of GDP at the end of 2024, the highest in the European Union. although the first months of the year led to a deepening of fiscal-budgetary pressures, public data for November suggest that the fiscal measures adopted this year are starting to produce effects and support a modest economic evolution, according to the Romanian Economic Monitor (RoEM)-UBB FSEGa specialists, a research project of the Faculty of Economic Sciences and Business administration (FSEGa) of Babes-Bolyai University (UBB) in Cluj-Napoca.   According to estimates from RoEM-UBB FSEGa, economic growth is expected to reach around 0.7% by the end of 2025, slightly below the market consensus of 1%, allowing Romania to avoid a deep economic recession. However, RoEM economists believe that significant economic risks remain. It is expected that the budget deficit and trade deficit will continue to be among the highest in Europe, while high inflation and modest economic growth will continue to erode real incomes.   Statistics published at the beginning of the year showed that Romania started from a major budget deficit of 8.65% at the end of 2024—equivalent to a 9.3% deficit according to ESa methodology used for European statistics—making it the highest budget deficit among EU countries. Without a drastic reduction of this deficit, RoEM-UBB FSEGa calculations show that Romania could reach a debt-to-GDP ratio of 100% in just 5–6 years. Considering that the European Commission’s excessive deficit procedure threshold is 3%, which Romania has exceeded continuously over the last six years, the deficit level was completely unsustainable. Therefore, most of the government’s economic measures, including the “train ordinance” implemented at the start of this year and the first major fiscal measures package applied from august 1, 2025, aimed to reduce this high deficit.   By September, monthly statistics showed the budget deficit following a trajectory similar to the previous year, signaling an alarming deepening of the fiscal-budgetary crisis. However, the latest statistics for November offer some hope: the cumulative budget deficit from the start of the year is 6.4% of GDP, compared to 7.1% during the same period of the previous year.   “In these conditions, reaching a budget deficit of 8.4% by the end of the current year no longer seems an impossible mission. Final figures will most likely be published at the beginning of next year, at which point we will see how effective the fiscal measures of 2025 proved to be. Even though a deficit of 8.4% represents only a modest reduction compared to 2024 and a disappointing result compared to the initial 7% target set in the state budget law, it could still send a signal of confidence regarding the government’s commitment to reducing the budget deficit to a sustainable long-term level,” explains Levente Szász, Vice-Rector of UBB Cluj-Napoca and coordinator of the RoEM-UBB FSEGa team.   Regarding economic growth, the first half of the year exceeded expectations, particularly in the second quarter, when Romania’s economy recorded a 1.2% increase compared to the first quarter. according to RoEM-UBB FSEGa analysis, presidential elections also took place during this period, providing a positive economic signal: government bond yields stabilized quickly, the stock market reacted positively, the exchange rate stabilized, and financing conditions improved significantly. The upward economic trend continued in July, with almost all sectors performing above expectations.   “However, these results were due to most economic actors bringing forward expenditures and invoicing before august 1, the date of the first fiscal package, which included, among other measures, an increase in the standard VaT rate. after the implementation of this package, a strong economic correction followed, with most sectors showing clear signs of slowdown. This correction was amplified in august by an unexpected rise in inflation to 9.9%, which significantly slowed consumption. Even so, most analysts still expect economic growth, albeit modest, for the entire year of 2025,” says Levente Szász.   To provide a clearer understanding of Romania’s economic dynamics in 2025, the RoEM-UBB FSEGa research team reviewed the most important economic events month by month: JanuaryThe year began with the implementation of measures from the so-called “train ordinance,” adopted on the last working day of the previous year, aimed mainly at immediately reducing budgetary expenditures. Key measures included freezing public sector salaries and pensions for 2025, halting public sector hiring, increasing the dividend tax, and eliminating tax incentives for employees in IT, construction, agriculture, and the food industry. FebruaryConsidering the unsustainable budget deficit, Parliament passed the 2025 state budget law, targeting an ambitious 7% budget deficit by year-end and optimistic economic parameters: 2.5% economic growth and an average annual inflation of 4.4%. although the targets were overly optimistic from the start, they at least signaled a firm political commitment to restoring budgetary balance in a complex political and fiscal context. MarchRomania reached a milestone by surpassing €100 billion in total EU non-reimbursable funds received, demonstrating that EU funds remain a crucial pillar for economic development even in a challenging domestic context. In the same month, the European Commission presented the Rearm Europe plan, significantly increasing European defense spending, which analysts believe represents an opportunity for Romania to strengthen its heavy industry. additionally, the largest banking transaction of the year concluded: the merger of OTP Bank Romania with Banca Transilvania, consolidating BT’s position as the market leader. aprilThe Trump administration aggressively raised tariffs, an unprecedented step in US trade history over the past 100 years. after multiple negotiations and political pressure, the EU obtained a temporary suspension of the tariffs, but they continued to negatively affect the European economy, introducing a new element of uncertainty in international trade. MayAmid political and fiscal uncertainties and following the shock of the first round of presidential elections with an extremist candidate reaching the runoff, the euro reached a historic low against the leu at 5.122 lei, surpassing 5.1 lei for the first time. The National Bank of Romania intervened multiple times to stabilize the exchange rate. Nicusor Dan’s victory in the second round temporarily calmed the situation, strengthening the leu and positively correcting the stock market. However, the budget deficit remained a pressing issue, representing the new government’s primary challenge. JuneRomania received final warnings from the European Commission and rating agencies: decisive measures to consolidate revenues and reduce budgetary spending could no longer be delayed, and the deficit had to be restored to a sustainable trajectory. Consequently, the Bolojan government began debating new fiscal measures. JulyThe new law for the first fiscal measures package was adopted at the end of July, introducing major tax changes aimed primarily at generating immediate additional revenue for the state budget. Key measures included increasing the standard VaT rate from 19% to 21%, replacing the reduced 5% and 9% VaT rates with a single reduced 11% rate, raising excise duties, introducing healthcare contributions (CaSS) for pensions above 3,000 lei, and additional taxes on financial institutions and gambling. AugustThe first fiscal package came into effect on august 1, preventing a short-term public debt financing crisis and Romania’s downgrade to “junk” status. although the measures represented a burden for citizens and businesses, they generated immediate budgetary revenue. Early estimates suggested these measures would be insufficient to reach the 3% GDP deficit target, prompting debates over a second fiscal package to address inefficiencies in the public system and reduce unnecessary budgetary spending, including special pensions. another major banking transaction occurred: the merger of UniCredit Bank and alpha Bank Romania, strengthening UniCredit’s market position. SeptemberThe National Institute of Statistics reported annual inflation for the previous month at 9.9%. Price increases followed the VaT hikes in august and the removal of energy price caps in July. The government agreed with the European Commission on a new 2025 deficit target of 8.4% of GDP, well above the initial 7%, considering that the effects of fiscal measures would only be reflected in the final 4–5 months of the year. OctoberOn October 1, the government adopted a budget revision, significantly reducing the projected economic growth from 2.5% (as forecast in February) to just 0.6%. October was also the first month showing signs of budget deficit improvement: the cumulative deficit for the first 10 months stood at 5.7%, 0.5% lower than the same period in 2024. NovemberAs part of the second fiscal measures package, Parliament adopted a law increasing certain local taxes, effective January 1, 2026, mainly affecting property and vehicle taxes. additional taxes on packages ordered from outside the EU will also apply. The government adopted a second budget revision, keeping the deficit target at 8.4% of GDP, with expected growth of 0.6% and average inflation of 7.1%. DecemberAfter months of legal and political disputes, the government twice assumed responsibility in Parliament for the law on raising the retirement age and capping special pensions for magistrates. Before Christmas, the government adopted a new “train ordinance,” increasing the minimum wage, reducing the minimum turnover tax in 2026 (eliminating it entirely from 2027), introducing a 1% flat tax for microenterprises, and abolishing the “pillar tax.” The measures aim to correct past fiscal anomalies and complexities, creating a more stable tax framework.