Romania’s GDP (chart) increased by 1.1% y/y in Q2, slowing down from 2.5% y/y in Q1 to the weakest annual increase since Q1 2021 according to the flash estimate published by the statistics office INS on August 16. In H1, the annual growth was 1.7% y/y.

The government projected 2.8% growth this year and the state forecasting body affirmed the projection on August 11.

The flash estimate disappointed some analysts and complicates the government’s fiscal consolidation efforts. On the one hand, GDP is seasonally larger in H2 and this means that in principle the growth might improve, but on the other hand, there are no grounds to expect a much stronger performance in H2 except maybe for agriculture.

“The 1.7% y/y growth in H1 is weaker than our 2.3% expectations, which were already at the lower limit of the analysts' range,” an ING Bank note to investors reads. The bank radically revised its forecast for this year’s growth to 1.5% from 2.5%. 

On a more optimistic note, BCR Erste analysts pointed to the seasonally-adjusted data: GDP increased by 2.7% y/y in Q2 and by 2.8% y/y in H1.

"We believe that historical GDP time series will undergo further revisions by the INS as additional data becomes available. Agriculture could be a positive surprise,” said BCR analysts in a report.

CFA Society deputy-head Adrian Codirlasu said he believes that full-year growth will exceed 2% – in line with the revised expectations expressed by Raiffeisen Bank Romania chief economist Ionut Dumitru.

In the longer term, Romania’s GDP increased by an annual rate of 2.6% over the past four years (since Q2 2019 – before the COVID-19 crisis). The four-year long-term growth was 2.7% y/y in Q1. This rate is more relevant (and encouraging) than the y/y change that is based on developments in 2022.