Economy stalls in the first quarter

GDP flatlines in Q1: According to a preliminary estimate, GDP stagnated on a seasonally and calendar-adjusted quarter-on-quarter basis in the first quarter, falling short of the 0.5% expansion logged in Q4 2024. As a result, the economy extended the erratic performance observed over the past six quarters—marked by a pattern of weak expansions alternating with mild contractions. On an annual basis, economic growth ticked down to 0.2% in Q1, following the previous period's 0.5% expansion.

Higher exports likely offset weaker government spending: While the release did not provide a complete breakdown, goods and services exports should have supported economic activity during the quarter, bolstered by the country’s full integration into the Schengen Area from January. On the other hand, government spending was likely a drag as the authorities looked to rein in one of Europe’s largest budget deficits.

Economy to accelerate: Our panelists expect sequential GDP growth to return from Q2, supported by stronger EU demand. For 2025 as a whole, the economy is set to accelerate from 2024’s slump, driven by stronger fixed investment growth—bolstered by rate cuts—and a less downbeat export performance. That said, private consumption is expected to lose some steam, keeping 2025 GDP growth below the 10-year pre-pandemic average. Stronger-than-expected economic momentum in top trading partner Germany remains an upside risk.

Panelist insight: Commenting on the outlook, ING’s Valentin Tataru stated: “Looking ahead, the outlook is clouded by the upcoming fiscal consolidation package. New tax measures are likely to weigh on consumption and private investments. At the same time, the liberalisation of electricity prices from July 2025 could trigger a sharp rise in energy costs. Early signals point to a solid double-digit price increase in electricity prices, which could push inflation towards the 6.0% area in the second half of 2025. Given the weak start of the year and the softness in the high-frequency data, we now expect the 2025 GDP growth to come at 0.8%, with risks still skewed to the downside. Investments, particularly those linked to EU funds and a more promising agricultural season, are the main drivers that could provide some support in the second half of 2025.”

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