Romania Economic Forecast

According to preliminary data, annual growth slowed in Q1, undershooting market expectations. Slowing external demand should have weighed on exports. That said, stronger retail sales growth suggests that private consumption was a key growth driver. The full breakdown is due on 8 June. Turning to Q2, our panelists expect growth to pick up slightly. Sturdy wage growth so far this year, April’s decelerating inflation and stronger hiring intentions over April–May versus Q1 should be continuing to support private consumption. However, in April–May, economic sentiment moderated compared to the Q1 average due to small deteriorations in industry, services and retail. In other news, the coalition government’s planned cabinet reshuffle has been delayed after teachers went on strike in May, demanding higher salaries. So far, they have rejected two pay rises proffered by the government.

Inflation decelerated to 11.2% in April (March: 14.5%), driven by lower price pressures for food, non-food goods and services. Our panelists expect inflation to return to single digits in Q3 this year on waning demand and a tougher base effect. That said, rising wages pose an upside risk.