This morning the National Institute of Statistics (NIS) released the provisional data (1) regarding the evolution of the GDP and components during Q4 and 2024. According to the statistics, the Romanian economy grew for the third quarter in a row, by an accelerating Q/Q pace to 0.8% in Q4, in line with the flash estimate released in mid-Feb. The Y/Y pace decelerated from 1.2% in Q3 to 0.7% in Q4, the lowest level since Q1, as the gross fixed capital formation declined by 12% Y/Y, the most severe contraction pace since Q1 2010 (the period of the Great Financial Crisis), given the accumulation of risk factors (politics and public finance). At the same time, public consumption had a negative contribution of 1.3pps to the annual pace of the GDP in Q4, in the context of the start of the fiscal consolidation process. On the other hand, the household consumption grew by an accelerating Y/Y pace to 6.5% in Q4, the strongest dynamic since Q2 2022, an evolution supported by the expansionary income policy in the electoral context. Last, but not least, the net foreign demand had a negative contribution of 2.8pps to the annual pace of the GDP in Q4, as the exports declined by the most severe pace since Q3 2020 (4.3% Y/Y), while the imports accelerated to 3.7% Y/Y (the strongest paces since Q2 2024). Therefore, in 2024 the Romanian economy grew by a slowing-down pace to 0.9%, slightly below our forecast of around 1% Y/Y. There can be noticed the decline of the gross fixed capital formation, for the first time since the pandemic year 2020, by 1.7% Y/Y, an evolution determined by the intensifying risk factors, in the context of the political developments and the severe deterioration of the public finance. Furthermore, public consumption had a negative contribution of 0.4pps to the Y/Y pace of the GDP in 2024. On the other hand, the household consumption climbed by 5.9% Y/Y in 2024, an evolution determined by the expansionary income policy in the electoral context, and the positive climate on the labor market. The net foreign demand had a negative contribution of 2.9pps to the annual pace of the economy in 2024, as the exports contracted by 3.6% Y/Y, while the imports rose by 3.4% Y/Y.
Our view: According to our econometric estimates the Romanian economy presented a growth pace below its potential for the fourth quarter in a row in Q4 2024, the longest period since the pandemic year 2020, as can be noticed in the following chart. Furthermore, working with NIS quarterly data, the econometric estimates show the deterioration of the Y/Y pace of the GDP to the weakest level since Q3 2012, when the economy was confronted with the consequences of the Great Financial Crisis. The evolution of the GDP components in Q4 2024 surprised to the downside, due to the severe deterioration of the investment climate, given the political developments and the upside risks in terms of public finance, in a complex international context. While working with Eurostat data, our forecasts for 2024 were indicating the advance of the GDP by 1.0% Y/Y, with gross fixed capital formation and private consumption expected to increase Y/Y by 2.8% and 6.1%. For the public consumption we forecasted a contraction by 0.2% Y/Y in 2024. As regards the net foreign demand, our forecasts indicated the decline of the exports by 3.2% Y/Y and the increase of the imports by 3.4% Y/Y. We are going to revise the core mid-run macroeconomic scenario in March, after incorporating the Eurostat estimates for the evolution of the GDP and components in Q4 and 2024. In our current scenario the Romanian economy would increase by Y/Y paces of 2.7% in 2025, 3.1% in 2026, and 3.3% in 2027, an evolution determined by the rebound of the fixed investments, with spill-over impact in the economy. The severe deterioration of the investment climate at the end of 2024 and the economic policy signals at the beginning of Trump 2.0 Administration express a high probability for a downward revision of our macroeconomic outlook for Romania | NEGATIVE
