RO: Pre-election drop in business sentiment

Economic Sentiment Indicator (ESI) dropped to 100.9 in April from 102.7 in March on weakness in all components except for the construction sector. Local developments mirrored pan-European trends, with ESI also down in the EU in April.

Our economic growth forecast is +1.8% in 2025 vs +0.8% in 2024. We see investments growing faster than households consumption, helped by inflows of EU funds. New fiscal consolidation measures are possible after elections, targeting mainly the revenue side of the state budget.

We retain our forecast of three rate cuts by the NBR this year, on weakness in domestic demand and monetary easing in the CEE region.

Manufacturing confidence decreased to -1.2 in April from -0.4 in March on shrinking production expectations and lower order books.

Quarterly survey of manufacturing shows capacity utilization higher at 69.2% in April vs 67.8% in January, but still below the long-term average of 76.8%. Managers evaluation of order developments over the past three months improved in April vs January.

Services sentiment declined to 3.8 in April from 7.0 in March due to weaker demand seen by managers in the past three months along with an expected drop in demand in the next three months.

Consumers were more pessimistic this month, with confidence indicator at -18.1 in April vs -17.3 in March. Households expect a deterioration in their financial position and in the general economic situation in the next twelve months.

Consumers intention to purchase or build a home or to carry out home improvements increased in April vs January.

Retail trade confidence went down to 10.2 in April from 11.5 in March due to managers pessimistic approach when it comes to future business situation. On the other hand, past business situation was seen as better by managers, suggesting strong retail sales around Easter holidays.

Construction sentiment improved slightly to -6.7 in April from -6.9 in March.

Selling price expectations declined marginally in manufacturing and increased in services, retail trade and construction.

Consumers price expectations for the next twelve months were up in April.