While Romania’s gross domestic product (GDP) per capita, governance and human development indicators are above ‘BBB’ category peers, those indicators are offset by large and persistent twin deficits relative to peers, high budget rigidities, and a fairly high net external debtor position, Fitch Ratings said in a statement on Friday. The country’s ‘BBB-‘ rating is also supported by EU membership and related capital inflows that support income convergence, external finances, and macro stability.
Romania’s recovery of economic growth is slower than expected, with GDP expected to inch up by just 2.5% in 2024 due to a pronounced weakness of growth in the second quarter. Still, the country’s economic growth is stronger than that of the eurozone, which Fitch projects at 0.8% this year, up from 0.4% in 2023. Romania’s household consumption, which has been the key driver of growth in recent years is seen to accelerate, boosted by lower inflation, strong nominal wage and pension growth. Moreover, EU funds, including cohesion and recovery funds, will drive growth and investment, boosting economic potential and accelerating convergence with EU standards, Fitch said.
Inflation has slowed more than expected in the first half of the year, with headline inflation hovering close to 5% in recent months, down from double digits figures until June 2023. Additionally, core inflation fell to 5.5% in July 2024, the lowest since January 2022, as per the report.
Fitch forecasts that the budget deficit will be 7.2% of GDP in 2024, up from last year’s 6.6%, before easing to 6.5% of GDP in 2025. Last month, Romania proposed to the European Commission to strike an agreement to slash budget deficit below 3% of GDP over the next seven years, as the need to co-finance investment under the National Recovery and Resilience Plan will not allow the country to meet this target within a shorter period of time, prime minister Marcel Ciolacu said.
“Fitch forecasts general government debt to GDP to increase to 59% at end-2026, from 48.8% in 2023, but still in line with the ‘BBB’ current median of 58.3%. Strong nominal growth, due partly to higher inflation, helped contain the debt increase until 2023, but high deficit forecasts combined with slower nominal growth put debt/GDP on an upward path. Despite the increasing debt, the interest payment to revenues ratio is 6.4%, more favourable than the 7.5% peer median,” the ratings agency said.
In March 2024, Fitch affirmed Romania at ‘BBB-‘, with a stable outlook.