Unicredit predicts that fiscal adjustments might dampen Romania's economic growth, yet these measures could potentially stave off a rating downgrade.
Romania's economic forecast has undergone some revisions, painting a mixed picture for the country's growth and inflation outlook.
According to the latest UniCredit Bank report, the revised forecast shows a negative revision of 0.5 percentage points for this year's growth, from 1.5% previously, to 1%. For 2026, the growth rate is projected to be 1.8%, down by 0.3 percentage points from the previous 2.1%.
Inflation is another area of concern. Under the effects of Value-Added Tax (VAT) rate upward revisions in 2025 and possibly in 2026, inflation in Romania will remain above 5% at the end of the year, according to UniCredit's revised scenario. This is higher than the European Commission's (EK) revised growth forecast for Romania's GDP for 2025 and 2026, expecting growth rates of 3.4% and 2.5%, respectively.
Anca Negrescu, a UniCredit Bank economist, believes that Romania will maintain its investment-grade rating if there are no major delays in implementing the government program and if improvements in fiscal terms are seen. She also mentioned that one of the hot topics on the analysts' agenda is the maintenance of Romania's investment-grade rating.
Unicredit's revised scenario envisages possible upward adjustment of VAT rates next year. This could lead to headline inflation remaining above the 3.5% upper limit of the 2.5%+/-1pp inflation band at the end of 2026. However, it's important to note that Unicredit's estimates are not included in the central bank's yearend inflation projection.
The central bank's forecast for inflation at the end of 2026 is 3.4% y/y, not including potential VAT rate hikes. Inflation at the end of the year is projected to be higher than 5.45% y/y in May and lower than the central bank's yearend projection of 4.6%.
On the monetary policy front, Unicredit anticipates a single reduction in the monetary policy rate by the National Bank of Romania (BNR) in 2025, of 0.25 pp in November. Rising risks suggest that monetary easing could be postponed to 2026.
In terms of the local currency (leu), after the exchange rate stabilizes in the range of RON 5.00-5.10 to EUR, the leu is expected to evolve slightly within this band until the end of the year. The estimated level of the leu against the EUR in December is RON 5.07.
Romania's fiscal consolidation efforts have resulted in a growth rate of 1% for this year, as per the same report. The government's latest decision on abandoning preferential VAT rate for most goods and services is not included in the central bank's yearend inflation projection.
In conclusion, while Romania's economic growth is expected to slow down slightly, inflation remains a concern due to potential VAT rate hikes. The maintenance of Romania's investment-grade rating is a topic of interest among analysts, and the leu is expected to remain stable within its current exchange rate range.
