While some economies in the region benefit from solid macroeconomic fundamentals, Romania remains exposed to significant vulnerabilities, especially in the area of ​​public finances and external imbalances. The domestic economic recovery is slow, and the risks associated with the fiscal and external position have increased considerably, which positions Romania negatively compared to other economies in the region.

At the same time, the overall global country risk improved in 2025, with 36 ratings revised positively and only 14 downgrades, according to the latest Allianz Trade analysis. The evolution reflects the capacity of several economies to adjust their fiscal, monetary and trade policies in a difficult international context. Among the countries that have recorded improvements are Argentina, Ecuador, Hungary, Italy, Spain, Turkey and Vietnam. In Central and Eastern Europe, the trend is mixed.

Although inflation has entered a downward trend at regional level, Romania continues to register one of the highest inflation rates in Central and Eastern Europe. Price pressures are fueled by structural rigidities, wage dynamics and incomplete monetary policy transmission. This development affects the purchasing power of the population and maintains a high degree of uncertainty for the business environment. Compared to other economies in the region, the faster moderation of inflation has allowed for a clearer normalization of economic conditions.

Slow economic recovery, in a more favorable regional context

After a modest economic performance, the Romanian economy continues to recover at a slower pace than that recorded by most Central and Eastern European economies. Although the regional economic cycle is starting to stabilize, Romania remains affected by the persistence of internal imbalances, which are holding back the recovery of demand and investment. Compared to other economies, Poland or the Czech Republic benefit from more solid macroeconomic fundamentals, which allow them to normalize economic activity more quickly.

However, Romania’s most important vulnerability remains the sharp deterioration in its fiscal and external position. The budget deficit increased to 8.7% of GDP in 2024, amid significant increases in public sector pensions and wages, as well as high spending related to the electoral cycle. In parallel, the current account deficit widened to 8.2% of GDP, reflecting rising imports, weak export performance and loss of cost competitiveness. All these factors have led to an external position assessed as significantly weaker than the level consistent with economic fundamentals and policies considered sustainable. Although Romania maintains its investment grade status, all major rating agencies have revised the outlook to negative, signaling concerns about fiscal sustainability and financing vulnerabilities.

Riskier external financing than in other CEE countries

The current account deficit is increasingly financed through debt-generating flows. Portfolio investments account for over two-thirds of external financing, increasing the Romanian economy’s exposure to sudden changes in investor sentiment and financial market volatility.

To reduce fiscal and external imbalances, the authorities have adopted a package of fiscal measures, including tax increases and expenditure restraint measures. However, financing risks remain high, in the context of still high deficits and rising public debt. In addition, the absorption of EU funds continues to be slow. By mid-2025, the NGEU funds utilisation rate was around 38%, and that of structural funds around 17% of committed amounts, levels lower than those recorded in other countries in the region. Weak administrative capacity and bottlenecks in public procurement procedures continue to affect investment implementation. While the business environment is considered adequate, the lack of structural reforms in key economic sectors and the slow execution of public investments limit growth potential in the medium term. These constraints affect the competitiveness and the economy’s ability to catch up with other Central and Eastern European economies.

“In 2025, improvements were mainly driven by stronger macroeconomic fundamentals, supported by more accommodative fiscal and monetary policies. In many emerging markets, better financing conditions, appreciating local currencies and higher commodity prices have allowed for the removal of transaction restrictions. Among high-income economies, improved political stability, disinflation and stronger trade performance have strengthened resilience in Europe (particularly Germany, Greece, Italy and Spain) and the Asia-Pacific region (including South Korea and Vietnam),” said Ana Boata, Head of Economic Research, Allianz Trade.

Political instability has complicated macroeconomic adjustment

Government instability and political fragmentation affect the coherence and predictability of economic policies. Recent electoral pressures have contributed to the relaxation of fiscal discipline, amplifying macroeconomic imbalances in a regional and global context marked by uncertainty.

In conclusion, Romania is not facing an imminent crisis, but it remains one of the most exposed economies in Central and Eastern Europe, both due to persistent inflation, high deficits and rising financing risks, and due to structural constraints that limit the adjustment capacity.

“There is, however, also good news related to the reduction of the budget deficit for the end of 2025, which should continue in the following years. Indeed, political uncertainties persist and risk derailing the government’s commitments to reduce the deficit and through the lever of reducing state spending (after the first lever of increasing revenues, through taxes, has already been used). However, we cannot help but notice that the imminent risk of a downgrade of the country’s rating has been overcome in the short term, and Romania is borrowing at lower costs compared to the first half of 2025.

On a micro level, assailed by the specter of inflation and delays in receipts/payments, companies are showing increased caution at the beginning of the year regarding future plans, with an effect on investments and private consumption. In this context, the probability increases that, from the second half of the year, if not even earlier, the discussion regarding the direction of the economy to move from the inflation plan (which will not disappear) to ways to boost economic growth, consumer sentiment and, possibly, to lower bank interest rates,” says Mihai Chipirliu, Credit Director, Allianz Trade Romania.