Romania’s statistics office confirmed on September 7 the economic slowdown to 1.1% y/y growth in Q2 (chart), providing details about the reason: final consumption growth eased to 1.1% y/y from 6.9% y/y in Q1, reaching the slowest annual growth since the COVID-19 restrictions.

The plunge of inventory stock accounted for 1.1% of the quarter’s GDP and made an important negative impact on the overall GDP growth of -4.0pp, possibly as a result of the inventory value revaluation. Gross fixed capital formation remained robust at 11.7% y/y and contributed 3pp to the overall annual GDP growth (+2.1pp in Q1).

On the upside, the subdued domestic demand eased the pressure on the country’s external balance and net imports accounted for only 3.9% of total domestic demand (consumption and investments), down from 4.0% in Q1. 

On the GDP formation side, industry continued its slowdown (-4% y/y in Q2 after -2.3% y/y in Q1) but the volume of services to households also eased to 0.9% y/y after coming in at 3.8% y/y in Q1 and over 8% y/y in the first half of 2022.

In the first two quarters of 2023, GDP increased by 1.7% y/y and in the four quarters ending in June 2023 it advanced by 3.1% y/y down from 4.1% y/y calculated at the end of March. The government drew up its 2023 budget based on hope for 2.8% economic growth.

Independent analysts, disappointed by the Q2 figures, lowered their projections. In a research note, ING said that it expects 1.5% growth this year (admittedly below the consensus forecast) but it also expects a recovery to 3.7% y/y in 2024 amid strong wage data and the approaching elections.

“Looking ahead, we expect growth to remain weak in the second half of the year and the economy to grow by only 1.5% y/y in 2023,” the bank’s note reads. ING analysts pointed to the weak retail sales readings in July (+1.2% y/y) but also argued that real wage growth should provide support in the second half of 2023 and limit the losses ahead.