Romania has entered a technical recession: GDP fell by 0.2% in the third quarter of 2025 and by 1.9% in the fourth quarter, amid increasingly evident imbalances and rising costs for businesses and households. Recessions are rarely the result of a single cause, notes economist Tyler Goodspeed in a book exploring more than 130 recessions. However, energy shocks are among the most dangerous shocks because they can disable production and then spread through finance and policy errors. States should strengthen resilience and keep markets working, but should avoid price controls, demand subsidies, administrative restrictions (export approvals, administrative allocations, controlled distribution etc.), windfall taxes, and other interventions that turn an energy shock into a wider recession.
Recessions are usually caused by shocks
Goodspeed’s central thesis is that recessions do not arrive simply because an expansion has lasted “too long.” Economies do not die of old age. They are pushed into contraction by shocks, or more often by several shocks interacting at the same time: financial fragility, geopolitical tensions, supply disruptions, monetary tightening, policy mistakes. That perspective is particularly relevant for Romania today, where the downturn cannot be reduced to one quarterly statistic or one isolated cause. The recession reflects the cumulative weight of several imbalances, above all the fiscal correction forced by Romania’s exceptionally large 2024 budget deficit, which reached 9.3% of GDP, equivalent to 152.7 billion lei. Now, the energy question has become one of the most powerful channels through which these pressures are transmitted into the wider economy.
Energy shocks hit both supply and the broader economy
Energy shocks matter so much because they do not remain confined to utility bills or commodity charts. They strike at the productive base of the economy. When electricity, gas or fuel become too expensive, too volatile or too uncertain, companies delay investment, reduce output, freeze hiring and pass higher costs downstream wherever they can. Households, in turn, cut consumption as a larger share of income is absorbed by essential expenses. From there, the shock spreads: margins shrink, credit quality deteriorates, confidence weakens and the broader slowdown deepens. In this sense, energy is never just another sector. It is an input into almost every other sector, which is why energy distress can so easily become macroeconomic distress.
Reasons for optimism
And yet there are reasons for measured optimism. Oil and gas shocks still matter, but today’s world is not identical to the 1970s. Energy markets are more diversified, supply chains are more flexible, strategic reserves exist, and many economies are less energy-intensive than they were half a century ago. Europe has also learned, through painful experience, that dependence on a narrow group of suppliers is itself a strategic vulnerability. Romania, with its mix of gas resources, nuclear capacity, hydro and growing renewables, is in a better structural position than many countries. The problem is not a lack of options, but the risk of undermining those options through incoherent policy.
At the same time, shocks do not usually become full recessions unless they are amplified by stress in finance and investment. Romania still has an important buffer: the 2026 budget just approved by Parliament is built around 163.8 billion lei in public investment, much of it backed by EU money, while budget revenues from EU transfers are projected at 4.8% of GDP, up from 4.0% in 2025. Minister of Investment and European Projects Dragoș Pîslaru says Romania’s ambition for 2026 is to attract 20 billion euros in European funds in total, of which about 15 billion would come from NRRP (10 billion) and cohesion funds (5 billion), with the rest from agriculture and SAFE. For energy, Romania still has large EU-backed financing channels for grids, efficiency, renewables and strategic projects, so the country is not short of money in principle. The real risk is not the absence of funding, but absorption and policy instability that could block these inflows from acting as a cushion against a deeper recession.
What we should aim at
What, then, should states do in such a moment? First, they should preserve the functioning of markets while strengthening resilience where markets alone are not enough. That means protecting critical infrastructure, encouraging investment in production, storage and grids, maintaining credible rules for investors and improving the ability of the system to absorb shocks without panic. It also means targeted support for the truly vulnerable, not blanket schemes that blur price signals across the whole economy. In parallel, governments should avoid compounding a supply shock with fiscal or regulatory instability. Predictability, investment discipline and the safeguarding of energy flows are more valuable in a crisis than improvised activism.
In general, the official message is broadly aligned with the right direction: PM Bolojan speaks about minimal collateral effects, transparency, security of supply, and sharing the burden without turning the whole market upside down. The extension of support for transport and agriculture, plus the idea that extra VAT revenues should be recycled into support schemes, suggests an attempt to combine resilience with more limited intervention. At the recent AFEER conference, Alexandru Molnar of ANRE said cautiously that the compensation settlement process is starting to move again, referring to the long-delayed reimbursement of the amounts suppliers advanced under Romania’s bill-capping and compensation scheme. January 2024 remains the last almost fully verified month, while roughly RON 7 billion is still reportedly awaiting reimbursement. Releasing these payments would not only ease the financial pressure on suppliers, but also help restore confidence, improve liquidity, and strengthen the resilience of the energy market as a whole.
What to avoid
Just as important is what states should not do. History shows that governments often make energy crises worse by trying to suppress their symptoms rather than solve their causes. Price controls, generalized subsidies, non-price rationing, punitive windfall taxes and abrupt regulatory changes may appear politically attractive, but they usually distort incentives, discourage supply and delay adjustment. Instead of calming markets, they often freeze them; instead of protecting growth, they can prolong weakness.
Romania appears to have stopped short of the harshest interventionist options initially discussed. Some experts note that the Government dropped the idea of a 50% markup cap for fuels and softened sanctions, avoiding measures that could have caused shortages. That shows some awareness of the danger of overreach.
However, the picture is far from reassuring. The ordinance still includes markup caps, export approvals, and other emergency controls that move away from a competitive market framework. While Adrian Negrescu warns that such steps are symbolic in their expected impact on final prices, Laurențiu Urluescu sees them as potential counterproductive, especially if they discourage normal market adjustment or create supply risks.
