RO: Business sentiment off to a good start in fourth quarter

Economic Sentiment Indicator (ESI) increased to 105.9 in October from 103.9 in September as managers in manufacturing, services and retail trade were more optimistic. Consumer confidence and construction sentiment declined.

We estimate economic growth at 1.9% in 2024 and 2.8% in 2025 with risks to the downside for the next year due to a gradual shift to prudent fiscal and income policies. Households consumption is set to grow slower in 2025 as personal income growth could decelerate, while gross fixed capital formation is likely to receive support from EU-funded infrastructure works.

Manufacturing confidence improved to 0.9 in October from -0.5 in September on rising production expectations. Export order books declined after remaining unchanged in the previous month, suggesting that a quick turnaround in manufacturing is not in the cards. Quarterly manufacturing survey shows a pickup in capacity utilization to 72.4% in 4Q24 from 68.0% in 3Q24.

Services confidence was up to 8.8 in October from 5.8 in September on better development of demand over the past three months and expected for the next three months. Capacity utilization in services was little changed at 84.7% in 4Q24 vs 84.9% in 3Q24.

Consumer confidence dropped to -12.2 in October from -11.7 in September. Households were more optimistic about their financial situation in the next twelve months, but this was at odds with their intention to carry out major purchases in the future which declined visibly. Consumers plans to purchase or build a home or to carry out home improvements increased in 4Q24. A thin optimism fueled by strong income gains at present likely stood behind these trends, but the outlook for the next year looks hazy on expected changes in official policies.

Retail confidence increased to 12.3 in October from 11.6 in September on brighter business situation expected for the future.

Construction confidence declined to -5.9 in October from -5.3 in September as order books fell.

Selling price expectations were roughly unchanged in manufacturing, increased in services and construction and declined in retail trade. Consumers price expectations for the next twelve months moderated.