RO: Industry turns a corner, growth expected this year

Industrial production jumped +2.0% m/m and +2.1% y/y in January. This significantly exceeded our forecast of -0.4% y/y and the market consensus of +1.0% y/y.

After contracting in 2023 and 2024, we anticipate a return to growth for industrial production this year, forecasting a +1.1% increase. Significant investments in EU security along with large fiscal stimulus planned in Germany for infrastructure and defence spending are likely to boost local industrial production.

Domestic and external confidence indicators appear to be rebounding from record lows and new orders for manufacturing are gaining speed gradually.

Mining was up +1.6% m/m and +2.2% y/y, manufacturing increased by +2.0% m/m and +2.7% y/y, while energy production grew +0.7% m/m and decreased by -4.1% y/y.

A number of sectors posted double digit growth rates within manufacturing: manufacture of other transport equipment (+22.3% m/m and +13.3% y/y), pharma industry (+15.0% m/m and +21.1% y/y), manufacture of beverages (+16.2% m/m and +10.2% y/y), printing and reproduction of recorded media (+12.2% m/m and +10.3% y/y).

BCR Romania Manufacturing PMI was up to 48.3 in February from the record low of 46.1 in January, while remaining below the 50 neutral mark. All components but suppliers delivery times had a positive directional contribution in February. The biggest improvements were seen for new orders, output, and stocks of purchases.

Manufacturing confidence rose to -1.6 in February from -2.1 in January according to the Economic Sentiment Indicator, supported by sharply lower inventories and higher production expectations.

The manufacturing component of the Ifo Business Climate Index for Germany improved in February as companies were less pessimistic about the coming months. HCOB Eurozone Manufacturing PMI rose to a two-year high at 47.6 in February as contractions in output and new orders eased.