After narrowly avoiding a technical recession in the second half of last year, the EU economy entered 2024 on a weaker trajectory than previously predicted, with no imminent recovery on the radar, a BRD Departmental research analysis shows.

The decline in consumption was the key driver of the modest changes in real GDP at the EU level. In addition, global merchandise trade has been anemic, given the triple whammy of falling demand for consumer goods, tight financing conditions and increased fragmentation of global trade.

Although Romania’s growth rate remains stable compared to many advanced economies and CEE countries, the growth rate has slowed significantly in 2023 (2.0% vs. 4.1% in 2022).

Investments were the basis of domestic GDP growth. The construction sector also showed stable performance last year. (+13.8% y/y), mainly due to civil construction works (+32.7% y/y) related to large energy efficiency and transport infrastructure projects.

We remind you that state investments increased by +38.8% y/y to 100.7 billion lei (6.4% of GDP), of which 61.6% was financed from EU grant funds.

Outlook: GDP growth is expected to recover, approaching the potential level in 2024 (3.4%).

Factors:

• steady growth in real household disposable income (we are seeing double-digit wage growth and bold pension growth) along with a recovery in confidence,

• investments financed by the EU. The funds available to Romania under the Recovery and Resilience Plan are estimated at €28.5 billion (10% of GDP in 2022). So far, Romania has received ~ 9 billion euros. The third payment request of €2.7 billion (submitted on 15 December 2023) is currently under evaluation, with 74 milestones and targets (some quite ambitious) to be met.

• the transition of monetary conditions to a less restrictive attitude both at the local and regional levels;

• the budget situation is still very difficult, with a low probability of a fiscal adjustment this year; Eurozone manufacturing fell for an eleventh month in a row in February, with the rate of decline accelerating again after January. Germany (our main trading partner) is a brake on the growth of the Eurozone. The German government said that Europe’s largest economy is in “troubled waters” and lowered its growth forecast for this year (from 1.3% to just 0.2%).