Romania’s economy contracted on a quarterly basis in the third quarter as higher electricity prices and hikes to value-added tax and excise duties depressed domestic demand, but exceeded expectations in annual terms, data showed on Friday.
Romania’s gross domestic product (ROGDPF=ECI) grew 1.6% year-on-year in the third quarter, above a Reuters poll forecast of 1.0%, statistics office data showed.
On a quarterly basis, the economy shrank by 0.2% in seasonally adjusted terms during July-September. A government price cap on electricity prices expired at the start of July, followed by hikes to value-added tax and excise levies in August.
The data breakdown will be released in December.
The months-old broad coalition government has had to raise taxes to lower the highest budget deficit in the European Union, which exceeded 9% of economic output in 2024.
The tax hikes were enough to prevent a ratings downgrade from the last rung of investment grade, but they pushed inflation to near double digits, the highest level since mid-2023, and depressed household consumption.
The government needs to deliver further deficit-cutting measures – which it has said it aims to do by cutting state spending – to lower the shortfall to near 6% of output next year from an expected 8.4% in 2025.
Analysts have said growth could be supported by EU funds – Romania still has about 10 billion euros available under Brussels’ recovery and resilience funds package pending reforms before an August 2026 deadline – as well as by good harvest data after years of drought-stricken crops.
“We maintain our forecast of 1.3% GDP growth in 2025, and even with a quarterly stagnation in the last quarter we see the annual dynamic accelerating further,” BCR Bank said in a research note.
“For 2026 we see economic growth at 2.1% but we see some downside risks. We see investments supported by EU funds crucial for GDP growth next year, considering that consumption should remain depressed versus historical norms.”