Monitoring Romania: The last-mile RRF push meets a weak economy
The desk emphasizes that Romania's economic adjustment is precarious, facing headwinds from weak consumption and high inflation, despite progress from significant EU-funded investment. Per the full note from ing-think, Romania is expected to experience a GDP contraction of 0.5% in 2026, before bouncing back to 2.3% in 2027. This fragile rebalance, characterized by a projected current account deficit narrowing to below 7.0% of GDP in 2026, highlights the challenges ahead. With no high-impact events scheduled in the immediate future, attention will remain on the performance of the Romanian economy as it navigates these structural issues.
What the desk is arguing
The desk argues that Romania's macroeconomic rebalancing is at risk due to an unfavorable consumption environment and stubbornly high inflation. According to ing-think's analysis, Romania is expected to contract by 0.5% in 2026, indicating that while recovery is anticipated, the road ahead is fraught with challenges driven by weak fiscal execution and external imbalances.
Inflation remains a pressing concern, predicted to average 8.2% through 2026 before declining to around 3.6%. Such conditions reflect an atmosphere that could suppress inward investment beyond the impending EU fund inflows, already projected to reach a historical peak in 2026 according to the firm's expectations.
Where it sits in our coverage
Our consensus target currently sits at 1.075 for the EUR/RON, with a range spanning from 1.04 to 1.12. Notably, this aligns with jpmorgan, which has set a target of 1.10 for March 2026, while bofa projects a more conservative target of 1.04 for the same period.
This analysis suggests that the desk's viewpoint concerning Romania's ongoing macro challenges dovetails with general market expectations, particularly regarding the moderate recovery anticipated in 2027. However, the desk's stance leans towards the lower end of the projected range given the current economic indicators.
How other firms see it
Several institutions, including jpmorgan, maintain an aligned view, projecting modest improvement in the Romanian economy while acknowledging the obstacles presented by rising inflation and fiscal challenges. In contrast, bofa holds a more pessimistic outlook, as indicated by their lower target.
The ongoing trajectory of EUR/RON will be closely connected to the performance of Romania's fiscal policies and inflation trends. Observing the intersection between these factors will be crucial, particularly as the regional economy continues to adjust.
01Romania faces a fragile macroeconomic environment with GDP contraction projected for 2026.
02Significant EU fund inflows are expected, but risks around implementation persist.
03Inflation remains high, complicating monetary policy and economic stability.
04The political landscape adds uncertainty about policy continuity and reform.
Market implications
Traders should closely monitor EUR/RON price action, particularly around the projected shifts in economic indicators. The 1.07 level will be crucial as a reflection of financial market sentiment on Romania's recovery trajectory.
Risks to this view
A significant shift in Romania's inflationary trends or political instability that disrupts EU fund absorption could sharply alter the economic outlook, prompting a reassessment of market positions.
Older quick take Quick take Published 11:06 Romania Monitoring Romania: The last-mile RRF push meets a weak economy Romania’s macro rebalancing is gaining traction, helped by strong EU-funded investment, but the adjustment remains fragile as weak consumption, fiscal execution and still-high inflation continue to shape the outlook With the fifth and sixth National Recovery and Resilience Plan payment requests expected to be submitted in August and September, 2026 could mark a historical peak in EU funds inflows Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Stefan Posea Economist, Romania Valentin Tataru Chief Economist, Romania Romania enters the second half of 2026 with weak growth but clearer signs of macro rebalancing. Consumption has slowed sharply, fiscal execution has improved, and the external deficit is adjusting, while EU-funded investment continues to soften the downturn. The political situation adds a layer of uncertainty around policy continuity and reform delivery.
Romania at a glance: Growth outlook : We have revised our GDP growth forecast downwards, and we now expect a contraction of 0.5% in 2026. We expect a rebound towards 2.3% in 2027. Fiscal position : A deficit of 6.0% of GDP or even less for 2026 appears achievable given the strong improvements in the first half of the year.
National Recovery and Resilience Plan : The fifth and sixth NRRP payment requests are expected to be submitted in August and September. Chances of close to full absorption look reasonable, although some implementation risks remain. 2026 could mark a historical peak in EU funds inflows. External balance : Consumption has gone through a sharp adjustment, which is now feeding into a narrower trade deficit.
We expect the current account deficit to fall below 7.0% of GDP in 2026 and move closer to 6.0% in 2027. Inflation and monetary policy : we expect inflation to end 2026 at around 6.0%, averaging 8.2% for the year, then fall to 3.6% by end-2027 with a 4.3% annual average. Our base case assumes the National Bank of Romania (NBR) will cut rates by 100 basis points in 2027, starting with a 25bp cut in January.
Risks : Although the latest budget deficit data points to visible improvement, this remains only a step in the right direction and consistent execution is still key. The prolonged interim government situation adds uncertainty around policy continuity, reform implementation and Recovery and Resilience Facility (RRF) milestones, while rating downgrade risks remain important as growth, fiscal and political stability remain under close scrutiny. GDP growth: Investment offers some relief Romania’s economy expanded by only 0.7% in 2025, continuing a period of growth well below potential.
Weakness carried into 2026, with GDP falling by 1.2% year-on-year in the first quarter. Household consumption was the main drag, declining by 1.8% and subtracting 1.1ppt from GDP growth. Investment, by contrast, rose by 2.2%, adding 0.4ppt to growth.
Exports grew faster than imports, but mainly because domestic demand weakened substantially. On the supply side, construction output increased by 7.9% in the first quarter, supported by the investment cycle. Industry contracted by 1.3%, as external demand has yet to provide a meaningful boost, while the services sector output worsened visibly.
GDP (YoY, %) and contributions (ppts) Source: NSI, ING "> Source: NSI, ING Our current base case is for a mild GDP contraction of 0.5% this year. High-frequency data suggests that stagflationary pressures remained in place through the second quarter. Consumption continues to be the main weak spot in the growth mix, especially as real wage growth has been negative over the past year.
After weakening in the first half of 2025, private investment has gradually started to recover some lost ground, helped by public investment tailwinds preventing a deeper downturn. Economic activity therefore likely remained lacklustre in the second quarter and is unlikely to brighten materially in the third quarter either. Consumer and business confidence remain far from a full recovery, inflation is still elevated, and the fiscal impulse remains restrictive.
The labour market is also showing signs of both weakness and adjustment. Total employment has declined from its early-2025 peak, falling from a record 5.18 million in March 2025 to 5.11 million by May 2026. Job vacancies remain weak, at 0.6%, placing Romania among the lowest in the European Union.
Hiring has largely shifted from expansion to replacement, with firms focused on filling essential roles while limiting net job creation. Looking further ahead, growth should gradually recover as we move into 2027 and over the medium term. A key driver is the productive potential, supported mainly by the ongoing investment cycle, with infrastructure development taking centre stage.
Although the RRF ends in August 2026, several projects should continue, especially in capital-intensive sectors such as health and transport, where financing is expected to shift towards Cohesion funds. In addition, under the SAFE framework, Romania is set to access a sizeable allocation of around €16.7bn, including pre-financing of roughly €2.5bn, subject to formal procedures. This should also support FDI appetite, alongside a gradual recovery in private consumption as inflation cools.
Taken together, these factors should provide a firmer base for activity. We expect growth to recover to 2.3% in 2027, after this year’s projected 0.5% contraction. Infrastructure and energy: Building the next growth engine?
Romania’s economy is currently telling two apparently contradictory stories. The first is one of persistent industrial weakness. Industrial output fell by 3.1% year-on-year in January-May 2026, with manufacturing down 4.3%, while the overall decline accelerated to 5.3% in May.
This weakness is not new. Industrial production has been in negative territory since 2023 and, excluding Covid-distorted data, has been on a broader contractionary trend since 2018-19. The second story is much more constructive.
Construction output increased by 11.3% over the same period, supported mainly by civil engineering works, especially infrastructure, but also by residential and non-residential projects. Industrial weakness is partly cyclical. Demand from Western Europe, and Germany in particular, remains subdued.
Financing costs are still elevated, while domestic fiscal consolidation is weighing on consumption. However, the persistence of the contraction also points to structural constraints. Romanian manufacturing remains concentrated in relatively energy and labour-intensive segments, where input cost pressures have become increasingly relevant.
There are also significant parts of the capital stock that require modernisation, while skills shortages continue to make the headlines. A recovery in external demand should eventually help, especially as Germany’s infrastructure and defence stimulus gains traction. However, this would not, by itself, resolve Romania’s competitiveness challenges.
Strong construction activity is currently offsetting part of the industrial weakness. The final RRF implementation push, motorway and railway works, energy projects and sustained public investment are keeping activity afloat even as private consumption and manufacturing remain under pressure. More importantly, these projects are not only supporting GDP today – they are also creating the conditions for a better growth model tomorrow.
Romania’s productive potential should benefit from more competitive transport costs, stronger connectivity and better energy availability. As nearshoring and friendshoring trends continue, Romania’s Schengen membership, faster motorway development, and the strategic position of Black Sea port facilities strengthen its potential as a production, distribution, and logistics platform linking Central Europe, the Black Sea, Ukraine and Moldova. This infrastructure push will not automatically correct Romania’s macro imbalances.
In the short run, it will still rely heavily on imports. However, the likelihood of stronger domestic supply capacity, more tradable sector production and a gradual shift towards higher-value exports has increased. European policy is also moving in the same direction.
The Clean Industrial Deal places greater emphasis on affordable energy, energy-intensive industries, clean technologies and resilient supply chains. The Industrial Accelerator Act is expected to support European-made and low-carbon products in public procurement through targeted eligibility and award criteria. The next EU budget and the European Competitiveness Fund should also place more emphasis on clean manufacturing, digital technologies, defence, space and strategic industries.
The defence sector adds another potentially transformative dimension. As we've mentioned, Romania has access to around €16.7bn of SAFE financing, including pre-financing of roughly €2.5bn. Beyond security itself, keeping a larger share of this new industrial activity inside Romania is starting to move from political intention to concrete investment projects.
A recent €5.7bn defence procurement programme covering combat vehicles, air-defence systems, ammunition and naval vessels is expected to generate technology transfers and integrate a large number of local subcontractors. More than half of production is planned to take place in Romania or in partnership with Romanian companies. Deliveries are scheduled for 2028-30, placing defence among the potential new catalysts for industrial development, supply chain integration and technological upgrading.
Fiscal policy: better than expected, just when it was needed most Source: MFin, ING "> Source: MFin, ING After two years of missing fiscal targets by several percentage points, the final result for 2025 brought a positive surprise. The full-year deficit came in at 7.7% of GDP. While still very high, this was clearly below the 8.4% target agreed with the European Commission.
The improvement did not stop there. In the first half of 2026, the cash deficit again surprised on the positive side, reaching only 2.0% of GDP, compared with 3.65% in the first half of 2025. Looking at the details, revenues increased to 16.7% of GDP in January-June 2026, from 16.2% in the same period of 2025.
VAT revenues were a key driver. Higher VAT rates played a role, but collection also appears to have improved, particularly given that the gains were achieved in an environment of economic contraction. In nominal terms, VAT revenues rose to RON74.2bn, a 25% annual increase.
To put this into perspective, before last year’s tightening measures, VAT revenues averaged around 6.5% of GDP per year. In 2025, they increased to 7.0% of GDP and are likely to edge higher this year. Spending, meanwhile, fell to 18.7% of GDP in January-June 2026, from 19.8% in the same period of 2025.
The improvement came mainly from more contained spending on the public wage bill and social assistance, both of which have been affected by freezes over the past two years. Investment spending remains crucial to watch. Over the same period, EU funds-driven investment increased from RON27.2bn in 2025 to RON42.5bn in 2026, a 56% rise.
Capital spending financed from the national budget fell sharply, but this appears largely related to one-off factors in the first half of 2025 rather than a broad collapse in actual investment. Looking ahead, the fifth and sixth payment requests are expected to be submitted to the European Commission in early August and late September, respectively. The chances of close to full RRF absorption look reasonably good, although the complex wage law remains unresolved.
Most other laws were completed during the extraordinary parliamentary session in the last week of June, including measures related to: Fiscal authority and customs rewards: €770m Integrity Agency: €770m Urbanism code: €970m Decarbonisation in heating: €770m Political uncertainty remains an important caveat. The interim government has now been in place for around three months, which raises questions around policy continuity, reform ownership and the ability to deliver politically sensitive milestones on time. This does not invalidate the recent fiscal improvement, but it does increase the premium on execution, especially as the final RRF deadlines approach and markets continue to assess the credibility of Romania’s consolidation path.
Even after the NRRP ends, the investment cycle should continue, albeit at a less intense pace. Some projects have been moved to other programmes, including transport and health, while the final stretch of the 2021-2027 EU multiannual financial framework is approaching. At this stage, our forecast for the 2026 budget deficit remains 6.0% of GDP, although a better outcome is not out of the question.
Balance of Payments: Still elevated but improving The current account ended 2025 with a deficit of 7.9% of GDP, down from 8.2% in 2024. The improvement was driven mainly by a narrower goods deficit, while the services surplus remained broadly resilient. So far in 2026, based on data through May, the correction has continued.
The current account deficit stood at €11.4bn in January-May, compared with €12.1bn in the same period of 2025. The goods deficit narrowed to €13.2bn, while the services surplus remained strong at €5.6bn. The largest contributors to the goods deficit remained chemicals, followed by manufactured goods and fuels.
Raw materials remained the only category with a small surplus. The services surplus continued to be supported by IT and transport. These gains were partly offset by a large tourism deficit, which widened further compared with the previous year.
Outside the current account, the capital account improved visibly in 2026, helped by stronger EU funds inflows. The year remains on track to be a record for EU funds absorption. Diminishing pressures from domestic demand Source: NSI, ING "> Source: NSI, ING FDI was weaker in headline terms, with non-residents’ direct investment at €2.2bn in January-May, down from €2.9bn a year earlier.
The structure is more encouraging than the headline suggests, as equity and reinvested earnings remained positive, while intra-group financing was negative. Looking ahead, cautious private consumption should continue to support the trade balance in the short run. However, the investment cycle will also continue to create import pressure, offsetting some of the gains.
Over the longer term, stronger industrial cooperation at the European level, especially in energy, agriculture, raw materials and manufacturing, could help ease some of Romania’s structural external imbalances. Further progress in autos and auto components, microelectronics, energy production and storage, and higher-value defence goods production will be important to watch. The current account deficit improved slightly Source: NBR, ING "> Source: NBR, ING Monetary policy and inflation: Rate cuts are yet to earn their place With rates unchanged since August 2024, we do not expect the NBR to adjust policy before January 2027, when we see the first rate cut.
The prolonged tensions in the Middle East remain an important inflation risk, as well as a potential driver of capital outflows given Romania’s still-large macro imbalances. The renewed inflation pressures that started last summer, although much smaller than the post-pandemic shock, have raised questions about whether policymakers should consider hiking rates. Inflation has been well above the official target.
Our long-held view remains that the NBR will preserve its policy ammunition and look through the inflation spike, even as real rates have moved deeper into negative territory. After inflation has printed between 9% and 11% for almost a year, we expect base effects and weaker demand to push the annual headline rate visibly lower from the summer onwards. We see inflation ending 2026 at around 6.0%.
This should happen as the effects of the tax hikes and electricity-market liberalisation from the summer of 2025 fall out of the annual comparison. At a more fundamental level, weak demand, declining employee numbers and limited wage pressures should also support disinflation. Over the medium term, industrial automation and AI adoption could become additional disinflationary forces.
Our baseline call remains that the NBR will cut rates in January 2027 and deliver 100bp of easing over the year. This should provide some support to the economy as it exits the current contraction episode. On interbank liquidity, we expect the NBR to avoid a return to the very large surpluses seen in the previous two years, even if EU funds inflows reach record levels.
The central bank is likely to aim for a balance: financial conditions somewhat looser than the key rate alone would imply, but not so loose as to require large FX interventions if outflow pressures reappear. Inflation (YoY, %) and contributions (ppts) Source: NSI, ING "> Source: NSI, ING In the FX market, we continue to expect broad stability, with EUR/RON around 5.25 for the rest of the year. Unless a significant negative event triggers large and unavoidable outflows, we do not think policymakers will readily tolerate another inflationary impulse from further leu depreciation, especially after the depreciation and energy shocks already seen in the first half of the year.
Large EU funds inflows may generate some appreciation pressure. However, as long as Romania’s twin deficits remain structural, natural outflows will continue to point towards gradual leu depreciation over time. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
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