Investment in Romania

Romania - Investment

Growth slows to near six-year low in Q1

A second reading confirmed economic activity waned in the first quarter, with GDP growth moderating to 2.4% year-on-year, down from Q4’s 4.3% expansion. Q1's reading marked the softest expansion since Q2 2014 as Covid-19 induced containment measures weighed on activity.

Looking at the details of the release, domestic demand saw a broad-based slowdown. Fixed investment growth lost significant traction in Q1, slowing to 5.9% from Q4’s 15.7% expansion. Moreover, public spending growth decelerated to 0.8% in Q1, down markedly from Q4’s 9.4% rise, while private consumption waned to 3.8%, down from the previous quarter’s 7.3% increase.

On the external front, exports of goods and services contracted 5.5% in Q1, contrasting Q4’s 6.4% expansion and marking the worst result since Q3 2009. Furthermore, imports of goods and services rose 0.8% in the quarter, a marked moderation from Q4’s 7.3% rise. Thus, taken together, net trade continued to contribute negatively to growth in Q1, more so than it did in the previous quarter.

In seasonally-adjusted terms, economic growth moderated to 0.3% in Q1 from Q4's 1.2% expansion. Q1's reading marked the slowest growth since Q2 2015.

Looking ahead, the GDP is seen contracting this year as the coronavirus pandemic deals a heavy blow to the economy. Domestic containment measures and disrupted value chains are set to cripple household as well as capital spending. Clouding the outlook further is the country’s fragile and worsening fiscal outlook, which raises the possibility of a credit rating downgrade to junk status.

FocusEconomics Consensus Forecast analysts see GDP falling 5.7% in 2020, which is down 0.2 percentage points from last month’s forecast. For 2021, analysts see growth at 4.9%.