Romania

The Romanian economy is expected to grow gradually in the near term amid necessary fiscal consolidation addressing the widening twin deficits. The public finances have deteriorated, driven by significant increases in pension spending, public wages, and domestically financed capital expenditure, and added pressure on the current account. A large fiscal reform package aimed at reducing the deficit to below 6 percent of GDP in 2026, including a VAT rate hike and other tax measures, has helped avoid a cutoff of structural EU funds and a sovereign credit rating downgrade to non-investment status. Headline inflation is expected to remain elevated until mid-2026 due to the impact of the VAT rate hike and the end of energy price caps.