Foreign Direct Investment (FDI) in Romania drops by 29% year-on-year, accounting for merely 1.4% of the nation's GDP over a 12-month period ending in March.

Romania's Foreign Direct Investments Tumble Amid Uncertainties

Foreign Direct Investment (FDI) in Romania drops by 29% year-on-year, accounting for merely 1.4% of the nation's GDP over a 12-month period ending in March.

Romania's foreign direct investments (FDI) have taken a nosedive, and the trend doesn't seem to be changing anytime soon. The net FDI contracted by a whopping 29% in the past year, reaching EUR 4.87 billion in March 2025, following a 33% drop in Q1 [1]. These figures paint a grim picture of the country's economic future.

The FDI contributions account for merely 1.4% of the nation's GDP and cover just a fraction of its 9.3% current account deficit [1]. The numbers are reminiscent of the net inflows of FDI, which stood at EUR 4.92 billion, a 31% decline year-over-year for the same period [1].

Romanian residents' investments overseas amounted to a meager EUR 46 million over the span of the past year [1]. A significant portion of the FDI to Romania in the 12-month period went towards new equity investments (EUR 1.5 billion), reinvested earnings (EUR 3.2 billion), and net borrowing of FDI companies from their foreign owners (EUR 177 million) [1].

Notably, the earnings generated by FDI companies in Romania have remained relatively stable at around EUR 11-12 billion since 2022 [1]. However, reinvested earnings plummeted from around EUR 7 billion to less than half that amount (EUR 3.2 billion) in the last 12 months, resulting in a retention rate of 27% of total FDI earnings, down from 50% in 2021-2022 [1].

Several factors are contributing to this downward spiral in FDI.

Domestic Political Uncertainty and Fiscal Pressures

Heightened political uncertainties and fiscal pressures impact investor confidence and increase government funding costs, affecting the attractiveness of Romania for foreign investors. The cancellation of the previous presidential poll due to foreign interference and the rise of a far-right nationalist candidate, negatively impacts investor sentiment [2]. Additionally, Romania faces fiscal pressures due to inflation-related spending increases and lower-than-expected EU fund disbursements, leading to austerity measures and budgetary constraints [2].

Economic Slowdown and Weaker Growth Outlook

Romania's economic growth has slowed markedly, with real GDP growth decelerating to 0.8% in 2024 from 2.4% in 2023 [5]. The European Bank for Reconstruction and Development (EBRD) has revised Romania's 2025 growth forecast to a modest 1.6%, attributing the sluggish growth to weak consumption and investment climate [5]. This economic downturn diminishes the attractiveness of Romania for foreign investors and reduces the potential profitability of reinvested earnings.

European FDI Slump and Geopolitical Environment

Romania's FDI contraction aligns with a broader slump in foreign direct investment across Europe, as FDI fell to a nine-year low in 2024 [3]. The persistent high energy prices, slow economic growth across Europe, and a tense geopolitical environment have discouraged investment activity, impacting Romania as well [3].

Specific FDI Metrics for Romania

Romania's FDI inflows have dwindled, with foreign direct investments falling 26.7% in 2023 to $8.41 billion and a 32% decrease (€1.67 billion) in Q1 2025 compared to the previous year [1][4]. The drop in reinvested earnings, a component of FDI, reflects diminished profitability or investor caution amid fiscal tightening, political uncertainty, and economic slowdown [1][4].

In conclusion, heightened domestic political uncertainties, fiscal consolidation pressures, a cooling Romanian economy, and the broader European context of slowing FDI inflows contribute to the decline in net FDI to Romania. These factors combined create an unfavorable environment for foreign investors and reduce the incentives for reinvesting earnings in Romania [1][2][3][4][5].

The decline in Romania's foreign direct investments (FDI) is not only tied to the turbulence within the nation, but also reflects the broader slump in finance within the European industry. The fiscal pressures, political uncertainties, and slowed economic growth have not only affected investor confidence for Romania, but have also contributed to the European FDI slump.

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