RO: Below expectations economic growth in the first quarter

Flash data from the National Institute of Statistics indicates that the Romanian economy stagnated in the first quarter of 2025 in quarterly terms. GDP growth was +0.0% q/q and +0.2% y/y, falling short of our forecast of +0.8% y/y and the market consensus of +0.9% y/y. This also represents a deceleration from the previous quarter's growth of +0.5% q/q and +0.5% y/y. Until the breakdown is released on June 6th, it is difficult to pinpoint the precise reasons for this lower-than-expected figure. However, we suspect a slowdown in consumer spending, potentially more significant than anticipated. Investment growth may also have been weaker than expected, and net exports likely continued to negatively impact GDP. Despite this setback, we are maintaining our current 2025 GDP growth forecast of +1.8%, although we acknowledge increasing downside risks. The data could be revised in the future.

Fiscal policy could weigh on GDP growth this year. The current budget relies on EU funds to finance substantial state investments, which are very important for GDP growth given the expected slowdown in consumer spending this year.

High-frequency indicators suggest that consumption decelerated in the first quarter, as evidenced by a decline in consumer confidence and a slowdown in retail sales during the first three months of the year. Data on construction activity for the first two months of the year presents a mixed picture, but overall, the sector appears to be performing better compared to the previous year.