RO: Economic sentiment suggests weak second quarter

Economic Sentiment Indicator (ESI) dropped to 97.0 in June from 99.3 in May on marked increase in consumers pessimism. Talks about fiscal consolidation measures weighed on consumer sentiment. Average ESI was 99.0 in 2Q25 vs 101.1 in 1Q25.

Our economic growth forecast is +1.3% in 2025. We see investments growing faster than households consumption, helped by inflows of EU funds, while private consumption is likely to be pressured by fiscal consolidation measures.

We recently revised upwards our inflation forecast to 5.6% y/y in December 2025 on higher electricity prices in July due to elimination of price caps for households. We see risks to the upside for our inflation forecast due to possible increase in indirect taxes. The NBR could turn more prudent in front of inflationary pressures, and we see only two rate cuts this year in 4Q25.

Manufacturing confidence improved to -1.4 in June from -1.9 in May on higher production expectations.

Services sentiment was little changed at 3.7 in June vs 3.6 in May. Demand over the past three months was seen as stronger by local managers in services and expectations for future demand improved marginally.

Consumers were significantly more pessimistic in June and the index arrived at -24.8 from -15.5 in May. Financial situation of household deteriorated in the past 12 months according to the survey and expectations for the next 12 months were markedly lower. As a result, households are less inclined to make major purchases in the next 12 months.

Retail trade confidence dropped to -1.3 in June from -0.4 in May on weak past business situation and virtually unchanged future business situation.

Construction sentiment decreased to -9.2 in June from -8.9 in May.

Selling price expectations were on the rise in manufacturing and construction, while in services and retail trade managers saw lower prices in the future.

Consumers price expectations for the next twelve months increased.