The National Commission for Strategy and Prognosis (NCSP) warns that the risks to Romania’s economic outlook generally tilt down towards a dipping adjustment of gross domestic product (GDP) growth estimates.
Risks stem from tariff barriers, persistent trade policy uncertainty, financial markets volatility and corrections, rising long-term interest rates, the emergence of social unrest and increasing challenges for international cooperation in the context of intensifying conflicts, shows the explanatory note accompanying the spring forecast.
Regarding a potential global trade war, NCSP says that this could fuel inflationary pressures, mainly through increasing import prices, which may have negative distributional effects between and within countries, and its continuance would generate additional risks to investments.
NCSP: Financial markets disruptions could trigger crises in emerging economies with limited market access and high financing needs
Worsening global financial conditions and broader disruptions to the financial system could trigger balance of payments crises in emerging economies with limited market access, with greater refinancing needs and weak negotiating capacity, warns NCSP.
„The development of the current macroeconomic scenario was carried out in a difficult climate, characterized by increasing uncertainties, both globally and domestically, but also by a low degree of predictability. In addition to the persistence of multiple shocks, taking place simultaneously, the efforts to correct internal macroeconomic imbalances, induced by the high twin deficits, and the continuation of structural challenges of European economies, a deterioration in international trade relations occurred in the first part of this year. This was caused by the change in trade policy by the US, which led to economic fragmentation, as well as a global reconfiguration of distribution chains”, the Commission for Prognosis shows.
Customs tariffs’ impact on Romania: Vehicle production will most likely shrink by 2.5%
In terms of the impact of the 25% customs tariffs imposed by the US administration on imports of steel, aluminum, cars and car parts, the analysis made by the National Commission for Prognosis concludes that the negative impact comes mainly from indirect effects, namely slumping Romanian exports to main trading partners, and less from direct effects, like waning shipments to the US.
Calculations took into account trade relations that Romania has with the USA, while evaluations of main trade partners were limited to Germany, Italy and France.
„Taking into account the trade picture, the most affected industrial fields of activity are, according to estimates: metallurgical industry, rubber and plastic production, electrical equipment and machines, machinery and equipment, with an average annual reduction in dynamics of about 3%.
A contraction in activity is also expected in the case of light industry, which, however, has a reduced share in the total industrial sector. A decrease in the volume of activity of about 2.5% was estimated in the case road vehicles production,” the NCSP document states.
Industry to shrink in 2025 for the 3rd consecutive year. How hard will the trade war hit?
According to the National Commission for Strategy and Prognosis, the assessment of the cumulative impact on the total industry led to a reduction in dynamics by 0.9 percentage points, which will lead to the 3rd year of contraction of this economic branch.
„Correlated with the restriction of goods exports and implicitly of the volume of industrial production, a declining trend in the transport sector activity was also estimated, which would balance out the growth initially forecasted as a result of Romania’s entry into the Schengen area. Concerning Gross Domestic Product, the total economic impact (cumulated across the two sectors) was assessed at 0.2 percentage points for the current year. The analysis did not quantify the negative effects induced by market uncertainty on the business environment and the population, which may affect investments and consumption, consequently amplifying the unfavorable impact”, according to the NCSP spring forecast.
„As a result of these factors, along with the unfavorable results of the high-frequency indicators in the first two months, as well as the instability felt by the business environment, the national macroeconomic estimates suffered a negative correction. In this climate, the dynamics of the gross domestic product for 2025 was revised downwards compared to the autumn forecast to 1.4%, a level that remains higher than the achievements of the previous year”, the NCSP explanatory note adds.
Analysis by branches
While the industrial sector „continues to be the most affected by the current international economic situation, (…) agriculture remains a vulnerable sector, dependent on climatic conditions, the 5% growth (…) estimated for the current year being a cautious one, not covering the decline from the previous year”.
In the field of construction, the dynamics of the volume is expected to slow down in the coming period, after a base effect in the first months of the year.
The services sector continues its positive trend, although at a slower pace of 1.6% (a downward revision by 0.9 percentage points), amid more moderate dynamics, mainly in the IT and professional, scientific and technical activities.
At the same time, the population’s propensity to consume will remain at a moderate level, while on the contrary, a reduction in the dynamics of government consumption by 0.7 percentage points (from 0.4% to -0.3%) was forecast.
Net exports continue negative contribution to GDP formation. Net exports to reduce GDP by 1.2 percentage points
With respect to investments (gross fixed capital formation), the unpredictability and uncertainty of the economic and political environment is expected to have a negative impact on this area, with investors opting to postpone the decision to start new projects.
Net exports will have a greater negative impact than estimated in the previous forecast, reducing economic growth in 2025 by 1.2 percentage points, as a result of declining exports of goods and services.
The NCSP also shows that the most recent data on high-frequency indicators indicate, on average, a slowdown in some activities, such as industry and some business services, compared to the evolution anticipated in the previous forecast.
„The prospects for a solid recovery of the industry remain reserved, taking into account the ongoing conflict in Ukraine and associated sanctions, the change in US trade policy, the relentless high pace of energy product prices with unfavorable impact on production costs, as well as the difficulties in global distribution chains as a result of trade relations fragmentation. Added to this is the slower recovery of external demand, caused by uncertainties about future economic developments, also manifested by Romania’s main trading partners, affecting the manufacturing industry”, according to the explanatory note prepared by the NCSP.
Industry runs with under-revved engines
Data for the first two months of the current year place the volume of industrial production in negative territory, with a dynamic of -3.9%, the decrease being caused mainly by the shrinking manufacturing (-4.3%) and extractive (-2.9%) industries.
The most affected branches were:
- clothing manufacturing (-20.4%)
- textile products manufacturing (-19.9%)
- manufacturing of vehicles, equipment and machinery manufacturing (-15.1%),
- road transport vehicles manufacturing (-12.9%)
- metallurgical industry (-9.8%)
- the evolution indicates decreasing demand and the persistence of difficulties in export-oriented and investment-oriented sectors.
On the other hand, positive developments were also recorded in sectors such as: manufacturing of basic pharmaceutical and medicine products (+15.6%), manufacturing of beverages (+6.7%), manufacturing of coke oven products and products obtained from crude oil processing (+6.5%), metal construction and products industry (+6.3%), furniture manufacturing (+5.3%) and food industry (+2.2%), these developments reflecting a greater degree of resilience of industrial consumer products. In the field of energy production and supply, a drop of 1.8% was recorded in the first two months, caused by modest results in electricity production in hydroelectric and wind power plants.
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