Romania's seasonally (and workday) adjusted  GDP rose by 0.5% q/q in Q1, reversing the 0.6% q/q decline in Q4 and bringing the index close to the level in Q3 last year – according to flash estimates published by the statistics office INS. 

The flash q/q estimate is roughly half of the expectations expressed in a Bloomberg survey, while the annual advance (+0.1% y/y) is particularly disappointing and more relevant. The fiscal stimulus is expected to push Romania's economy in 2024, but the particularly high military spending in Q1 prevented such effects. 

We still expect the year's economic growth to be in the range of 2%-3%, driven mostly by domestic drivers and depending on the pace of absorption of EU funds.

Central bank's governor Mugur Isarescu, speaking at the Inflation Forecast unveiling and quoted by Ziarul Financiar, ruled out the scenario of a technical recession episode this year, saying that all the high-frequency indicators, particularly the private consumption (retail sales), "demonstrate recovery."

The seasonally adjusted data partly lost relevance recently since the seasonality pattern was severely altered by significant events such as the COVID-19 crisis, the war in Ukraine in 2022, and the subsequent energy price shock that passed through the entire relative price matrix.

More relevantly, the annual GDP growth rate eased to 0.1% y/y in Q1, according to the flash estimate published by the statistics office - reaching the lowest reading since the COVID-19 crisis. 

The GDP growth in Romania thus eased from 5.6% y/y in Q1 2022 to 2.4% in Q1 2023 to a near standstill in Q1 2024.

The Q1 flash estimate figures "took by surprise both us and the market," according to a note to investors sent by BRD-SocGen and consulted by Hotnews.ro. A Bloomberg survey indicated expectations for +0.9% q/q, respectively +2.7% y/y growth rates.

However, Erste Group Bank said the flash figures "were in line with expectations," which were among the least optimistic in the market. 

Erste analysts said they will stick with their call of +2.6% GDP growth in 2024 in light of the recent data. The bank grounds its forecast on the rise in private consumption that became visible in the last quarter last year and is expected to continue throughout 2024 amid rising wages, looser monetary policy conditions, and slightly better external demand prospects. 

Erste analysts also said they expect the gross fixed capital formation contribution to remain significant in 2024, supported by inflows of EU funds and continued state investments into infrastructure. 

For 2025, the Austrian bank's analysts see the economic growth moving towards its potential to +3.9%.

The National Bank of Romania (BNR) conveyed a positive yet cautious message at its latest monetary board meeting when the press release mentioned that "the latest data and analyses indicate a notable economic growth" in the first months of 2024 compared to the fourth quarter of 2023, announcing at the same time "a drop in the annual GDP dynamics during this period," amid divergent developments in aggregate demand components and in major sectors.

iulian@romania-insider.com

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