After years of being among the fastest growing European economies, Romania is now in a tough spot, struggling with stagnation, high inflation and a huge budget deficit, which leaves little room for traditional methods of stimulating the economy – tax cuts, lowering interest rates and boosting public spending.
On the contrary, amid the economic slowdown, the government was forced to raise taxes to get the deficit under control and retain the country’s sovereign rating just a notch above “junk,” while proposed spending cuts are creating an unwelcome political crisis, writes eToro analyst for Romania, Bogdan Maioreanu.
Romania’s latest data for January 2026 show headline inflation at 9.6% year‑on‑year, slightly down from 9.7% in December 2025, far above the Eurozone average of 1.7% and the highest rate in the European Union. At the same time, the latest flash GDP figures indicate two consecutive quarters of real GDP contraction, with a steep drop of 1.9% in the last quarter, placing the economy in a technical recession even though the estimated full‑year growth for 2025 remains modestly positive at around 0.6%.
This duality—high inflation combined with a shrinking economy—signals a “hard‑landing” scenario, and also offers a big long-term opportunity – to rebalance the economy on a stronger footing and consolidate the country’s finances, which have been deteriorating since the pandemic.
On the growth side, the country’s projected 2025 GDP expansion of 0.6% was among the weakest in the region. Poland’s gross domestic product rose by 3.6% in 2025, the strongest growth since 2022, showing a clear acceleration from 3.0% in 2024. Currently, Romania is not the only country in the European Union that is in technical recession. Ireland is the other one, but for totally different reasons.
Its gross domestic product fell by 0.6% quarter-on-quarter in the three months to December 2025, following a 0.3% decline in the previous quarter, according to preliminary estimates. This marks the second consecutive period of economic contraction, largely driven by a downturn in the multinational-dominated industrial sector.
A technical recession is commonly defined as two consecutive quarters of negative seasonally adjusted quarter‑on‑quarter GDP growth, without implying a complete structural downturn. Usually, this is a narrow, mechanical criterion, with deeper recessions usually confirmed by broader indicators such as employment, industrial output and real‑income growth.
Recent episodes of technical recessions in the EU show that shallow, short‑lived downturns can be compatible with a broader recovery, provided labor markets and confidence hold. In 2022–2023, the euro area briefly entered a technical recession after the energy shock from the loss of the cheap Russian gas, yet unemployment remained near record lows, and the bloc avoided a deep slump thanks to strong services demand and fiscal cushions.
Romania’s situation partly mirrors these dynamics—energy and regulated prices have been key drivers of inflation, and the current technical recession is associated with a deliberate fiscal consolidation aimed at correcting a large budgetary deficit gap. However, Romania’s current situation underscores three key risks.
First, the inflation‑growth ratio is exceptionally tight. While a lower interest rate will stimulate economic growth, the National Bank of Romania will most likely remain reluctant to cut rates aggressively until inflation is clearly on a downward path. Second, the fiscal‑consolidation narrative—while welcomed by rating agencies—implies subdued domestic demand and higher political‑risk premiums, at least in the near term. Third, the risk of external shocks, including further energy‑price volatility and trade‑policy disruptions affecting the EU export channels, could prolong the recessionary phase.
The European Commission forecast for Romania a real GDP growth of “1.1% in 2026, as the necessary fiscal consolidation dampens private and public consumption, in turn further affected by a surge in inflation. Still, the economy continues growing thanks to a gradual recovery in private investment, an acceleration of Recovery and Resilience Plans funded spending and a sizable improvement in net exports.” This makes European resilience and reconstruction funds extremely important.
According to the latest eToro Retail Investor Beat survey, at the end of last year, 70% of Romanian retail investors were not confident about the Romanian economy. The current technical recession is an example of how persistently high inflation and monetary and fiscal tightening accelerated the slowdown, as part of a necessary adjustment. But in the long term, this creates an important opportunity: this adjustment, if credible and well‑implemented, can lay the foundation for a more sustainable growth path. In order to achieve this, politicians will have to cooperate in finding the best decisions that will serve the Romanian economy.
Romania’s economy grows 0.6 pct in 2025, slips into recession
