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- Romanian economy hit a minimum point in Q2 2025, in the context
of unprecedented domestic political tensions, with negative impact
on investments. FDIs contracted in May b y the most severe pace
since Mar 2020, according t o the NBR data, represented in the first
chart on the right side. The fiscal consolidation process(which started
in Q1, when the budget deficit/GDP ratio declined t o 7.5%, the lowest
since Q4 2023, according t o Eurostat) and the signaled structural
reforms in the public sector would contribute t o the improvement of
the risk perception, the increase o f the overall productivity, and the
consolidation o f the financial stability i n the coming quarters. I n July
S&P affirmed the sovereign rating a t BBB-, negative outlook, a s the
measures implemented by the New Government are forecasted t o
adjust the budget deficit/GDP ratio t o 7.7% in 2025 and 6.4% in 2026. - Growth forecasts upwardly revised in 2026 and 2027, on the back
o f better outlook for investments. According t o our revised forecasts
the GDP would increase by annual rates o f of 1.1% i n 2025 (vs. 1.5%),
3.6% in 2026 (vs. 3.3%) and 3.5% i n 2027 (vs. 3.4%). We increased the
forecasts for the annual pace of the gross fixed capital formation, a s
the fiscal consolidation measures (recently announced) would have a
positive impact o n the investment climate. The gross fixed capital
formation would increase by annual rates o f 5.5% in 2025 (vs. 5.3%),
6.3% in 2026 (vs. 5.7%), and 6.3% i n 2027 (vs. 4.8%). O n the other
hand, we cut the forecasts for private consumption (also given the
increase of the VAT from 1st Aug), t o Y/Y paces of 2.0% i n 2025 (vs.
2.2%), 3.0% in 2026 (vs. 3.2%), and 2.8% in 2027 (vs. 2.9%). - Inflation and Monetary Policy. The consumer prices (HICP) rose by
5.8% Y/Y in Jun, the highest level since Apr 2024, being noticed the
increase of the food prices by 7.7%. Core inflation inched up t o 5.6%
Y/Y in Jun, the maximum since Jan, according t o Eurostat. At the fifth
monetary policy meeting of 2025 NBR kept the policy rate and the
MRRs and expressed the worries regarding the inflationary pressures
in the short-run, while considering that the domestic supply-side
shocks would have a transitory impact, with low risks for mid-run
inflation expectations. I n our revised scenario the consumer prices
(HICP) would increase b y average Y/Y rates of 5.6% in 2025 (vs. 5.0%),
4.8% in 2026 (vs. 3.9%), and 3.4% i n 2027 (vs. 3.3%). We continue t o
forecast the resumption of the interest rate cutting cycle in 2025. - Banking Sector. The annual rate of non-government loans
decelerated from 9.7% in May t o 9.1% i n Jun, due t o the slowingdown of the NFC component from 9.0% in May t o 8.1% in Jun (the
household segment rose by 10%, the highest pace since Jun 2018). I n
our view, the non-government loans would increase by 8.7% in 2025
(vs. 8.6%), 7.6% in 2026 (vs. 7.7%) and 7.5% i n 2027 (vs. 7.7%). For
the non-government deposits the new forecasts indicate annual
growth rates of 7.6% in 2025 (vs. 8.0%), 8.5% i n 2026 (vs. 8.7%), and
8.8% in 2027. W e point out the increase o f the NPL ratio for the third
month in a row i n May, t o 2.66%, a n evolution determined by the
negative output gap and the upward trend of the real interest rates. - The balance o f risks continues neutral. Among the risk factors for
the economy in the short-run we mention the international macrofinancial climate and the pace o f the implementation of the structural
reforms in the context of the tensions in the Government coalition
