RO: Political turmoil hindered business sentiment

Economic Sentiment Indicator (ESI) dropped to 102.6 in December from 105.2 in November affected by domestic political events and pan-European weakness in business confidence. This was the biggest monthly drop in ESI since the shaky post-Covid recovery in the autumn of 2020.

ESI quarterly average was 104.4 in 4Q24 vs 103.3 in 3Q24 after strong readings in October and November, but broad-based weakness at the end of the year bodes ill for near-term economic prospects.

We estimate economic growth at +2.8% in 2025 with risks to the downside due to gradual shift to prudent fiscal and income policies. Investments supported by EU funds are likely to grow faster than households consumption, while trade deficit could narrow slightly.

Manufacturing confidence dropped to a four-year low of -2.7 in December from -0.7 in November due to shrinking order books and sharp drop in the expectations component.

Services sentiment decreased to 6.4 in December from 7.2 in November on weaker assessment of past business situation by managers.

Consumer confidence took a hit in the winter holidays season and came at -11.6 in December after reaching three-and-a-half-year highs at -9.0 in November. Households saw their financial situation over the past twelve months as worse but were more optimistic for the next year. Consumers seem less willing to purchase major items both at present and in the future.

Retail trade confidence fell to 6.3 in December from 11.8 in November on pessimistic assessment of business situation over the past three months and depressed consumer demand expected by managers.

Construction confidence was unchanged at -6.2 in December.

Selling price expectations increased in manufacturing and services and were flat in retail trade and construction.

Consumers price expectations for the next twelve months dropped in December.