RO: Full year growth revised down at +0.8%

Flash GDP data for Q3 2024 came in significantly below expectations, registering 0.0% q/q growth and 1.1% y/y growth. We had anticipated a 0.5% q/q and 2.0% y/y increase, while Bloombergs consensus was at 0.6% q/q and 1.6% y/y. After nine months, the economy has grown by only 0.9% y/y. Given the limited details provided by the National Institute of Statistics at this time, we can only speculate on the reasons behind these disappointing results. The structure of the GDP growth in Q3 2024 will be published on December 6th.

High-frequency indicators suggest that consumption decelerated in Q3 2024. Net exports likely continued to weigh negatively on economic growth, though monthly international trade data indicates that the impact may have softened this quarter compared to the previous one. Agriculture remains a major uncertainty and concern this quarter. Production figures have been low, hindered by drought, which likely dragged down overall economic growth. On the other hand, investments probably continued to contribute positively, helped by state spending.

In light of the recent data, and assuming no significant revisions, we are lowering our full-year economic growth forecast to 0.8%, down from our previous estimate of 1.9%. We maintain our 2025 growth forecast at 2.8%, although risks lean to the downside, depending on fiscal measures likely to be introduced at the start of 2025.

Agricultural production this year has been historically low, with output for sunflower, maize, and potatoes down by more than 40% compared to the 5-year average. Severe heat and drought have impacted production across Europe. The effects of low yields are evident in food prices, particularly in Romania, where vegetable prices have risen for the past three consecutive months at an average of around 3% m/m. In October, fresh fruit prices increased by nearly 8% m/m. The upcoming breakdown of Q3 2024 GDP data will likely highlight how this poor agricultural year has significantly weighed on economic growth.