Persistent political instability in Romania may lead to a challenging economic descent, the finance minister warns.
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In the bustling heart of Bucharest recently, Romanian Finance Minister Tanczos Barna addressed concerns at the Romanian Business Leaders Summit about the potential for a steep economic downturn, or a "hard landing," as he put it. This gloomy outlook comes with the country's substantial 8.3% budget deficit in mind.
These grim comments follow the dramatic dip the Romanian stock market experienced after the first round of presidential elections, which placed far-right populist George Simion in the lead with 40% of votes.
Tackling the issue, Tanczos Barna emphasized the importance of a fiscal overhaul. He initially believed that maintaining the status quo in terms of taxation and other revenue sources was plausible for the year 2025. However, post-election analysis is needed from the incoming administration, he added.
From a fiscal standpoint, the minister stated, things are not as bleak as the media portrays. Nevertheless, he cautioned against ruling out a severe correction, stating it's not credible to aim for a "soft landing." He continued, noting that the course of the "landing" depends heavily on the one in charge - the proverbial pilot of the economy, as it were. "If we have stability and can quickly form a government that enacts suitable measures, the landing can be managed," he said.
As for the current economic situation, Tanczos Barna declared that capital movements are substantial but still manageable, pointing to a solid balance thanks to the National Bank's extensive reserve, exceptional preparation in the region, and sustained stability.
The minister also assured that there's sufficient currency on hand for the central bank to support the exchange rate and offer a short-term buffer for expenses. The RON fell simultaneously with the Bucharest Stock Exchange as investors shifted their holdings to foreign currencies.
Balancing the budget, according to Tanczos Barna, necessitates consideration on both the expenditure and revenue sides, but it's best to avoid cutting investments. With that in mind, reductions will likely affect operational costs instead. The minister also highlighted optimistic signs such as record revenues in April, spending caps, and substantial investments.
(Photo source: Inquam Photos | George Calin)
While such an outlook might seem discouraging, it's essential to bear in mind the current economic climate. The World Bank has lowered its forecast for Romania's economic growth to 1.3% in 2025 and 1.9% in 2026, marking the lowest growth expectations in the region. Meanwhile, the IMF expects GDP growth of 1.6% in 2025, albeit up from a modest 0.9% in 2024, with a pickup to 2.8% in 2026.
Downside risks include global policy uncertainty, trade barriers, geopolitical tensions, financial market volatility, and weaker-than-expected performance by key trading partners, according to the World Bank. Fiscal policy remains a considerable uncertainty, with concerns over widening fiscal deficits, potential rating downgrades, and the need for budgetary discipline and structural reforms. The upcoming presidential election introduces political risk, as a government favoring fiscal consolidation and EU alignment could boost investor confidence, while instability or policies risking EU funding might worsen the outlook.
Inflation is forecast to cool off to roughly 3.7% by the end of 2025, but fiscal policy decisions could impact this trend. Meanwhile, the employment rate is expected to remain steady near 5.4% in 2025, with a slight improvement in 2026.
The Romanian Finance Minister, Tanczos Barna, warned about the potential for a severe economic downturn, or a "hard landing," at the Romanian Business Leaders Summit, citing the substantial budget deficit as a concern. This economic outlook comes amidst political uncertainty, as far-right populist George Simion leads the presidential election with 40% of votes.
The financial stability of the economy depends heavily on the actions of the incoming administration, with Tanczos Barna noting that the course of the "landing" depends on the proverbial pilot of the economy. Meanwhile, global policy uncertainty, trade barriers, geopolitical tensions, financial market volatility, and the performance of key trading partners pose downside risks to the economy, according to the World Bank.
