Romania: 2025 State Budget draft and Medium-Term Projections | NEUTRAL

by cristian.popescu

The Ministry of Finance has published the 2025 state budget draft along with macroeconomic projections for 2026-2028.

Romania 2025 Budget – Key Macroeconomic Data and Forecasts

2025 Budget Projections

Economic Growth and Sectoral Performance

  • Real GDP growth: 2.5%.
  • Industry: +0.5%, moderate recovery.
  • Construction: +4.8%, supported by infrastructure investments.
  • Services: +2.5%, driven by high-value-added activities.
  • Agriculture: +3.9%, recovering from a prior contraction.

Investment and Consumption

  • Investment growth: +5.9%, with a 27.4% investment rate in GDP.
  • Private consumption growth: +2.5%, in line with GDP expansion.
  • Net exports: Negative contribution of -0.8 pps to GDP.
    • Exports: +2.3%.
    • Imports: +3.8%.

Labour Market and Wages

  • Employment: +63k, reaching 5.475m employees.
  • Unemployment rate: 3.1%.
  • Nominal wage growth: 6.1%, slowing from 14.4% in 2024.

Inflation and Fiscal Policy

  • Inflation (year-end): 3.8%.
  • Annual average inflation: 4.4%.
  • Budget deficit (ESA methodology): -7.04% of GDP.
  • Current account deficit: -7.04% of GDP, slight improvement from -7.9% in 2024.

2026-2028 Medium-Term Projections

Economic Growth

  • Average GDP growth: 2.7%.
  • Peak growth: 3.0% in 2026.

Investment and Productivity

  • Investment growth: 7.0% in 2026, averaging 5.0% annually.
  • Investment rate: 28.7% of GDP by 2028.

Labour Market and Wages

  • Employment increase: +210k new jobs over 2026-2028.
  • Unemployment rate: Declining to 2.7% by 2028.
  • Nominal wage growth: 6.4% annually, with a 3.0% increase in purchasing power.

Inflation and Fiscal Consolidation

  • Year-end inflation (2028): 2.5%.
  • Annual average inflation (2028): 3.0%.
  • Budget deficit (ESA methodology):
    • 2026: -6.5% of GDP.
    • 2028: -5.7% of GDP.
  • Current account deficit: Expected to improve to -5.7% of GDP by 2028

Our View. The draft of the 2025 Public Finance Law, foresees a budget deficit-to-GDP ratio adjustment to 7.0% this year, in line with the mid-term fiscal consolidation plan agreed with the European Commission.The 2025 Public Budget framework assumes a 2.5% Y/Y real GDP growth, a realistic target from our perspective (our current forecast: 2.7% Y/Y). This outlook is supported by expected improvements in Eurozone economic activity (Romania’s main trading partner), positive momentum in international financial markets, and domestic factors, including EU-funded investment plans and base effects (notably in the primary sector).The Government aims to increase public investment to 7.8% of GDP in 2025, up from an estimated 6.7% in 2024. However, this target appears highly optimistic unless structural reforms are accelerated. Additionally, the macroeconomic scenario assumes an average annual inflation of just 4.4% in 2025, which we believe underestimates price pressures. In our view, inflation is likely to reach 4.9%, which could support fiscal consolidation.

The Government’s fiscal strategy aims to raise government revenues to 34.9% of GDP in 2025, the highest level since 2015 (up from 32.6% in 2024). Key measures include:

  • Requiring SOEs to distribute 90% of their profit as dividends.
  • Increasing the dividend tax from 8% to 10%.
  • Eliminating fiscal facilities for employees in agriculture, food, construction, and IT&C.
  • Implementing a special construction tax of 1%.
  • Reducing the microenterprise tax threshold to EUR 250K (from EUR 500K).

On the expenditure side, the Government plans to increase public spending to 41.9% of GDP in 2025, a record high (from 41.2% in 2024), despite proposals to freeze public sector wages and pensions and enhance spending efficiency (including a freeze on public sector fixed asset acquisitions).

In our view, economic activity and inflation could exceed the Administration’s estimates, potentially aiding fiscal consolidation, provided international financial conditions remain stable. However, if Q1 developments disappoint, the Government may be forced to introduce additional consolidation measures in Spring/Summer, particularly on the expenditure side, to safeguard Romania’s sovereign rating and ease investor concerns. We anticipate an acceleration of structural reforms post-Presidential elections, given that these are crucial to securing EU funding under the National Recovery and Resilience Plan (PNRR) | NEUTRAL.