Romania's economy could contract by 1%-1.5% in 2026 if the Q1 trends continue throughout the year, economic analyst Dragos Cabat told AGERPRES on Friday, who believes that cutting inflation and narrowing government deficit cannot be achieved without a time of economic contraction.
"The decline of the economy was expected, it was known that we would enter a recession this year, it is not a surprise. I would just say that the magnitude of this decrease matters. The fact that it exceeds 1% is slightly surprising and unpleasant especially, because the hope was to have a recession somewhere between 0 and 0.5% by the end of the year. If these data from the first quarter continue into the rest of the year, it seems that we will have a contraction somewhere between 1 and 1.5%. It is the only possibility to reduce inflation and the budget deficit at the same time. We cannot do it without contraction, especially given that we have not attracted or are not able to attract European money as we would have liked, because Romania, in fact, for 2-3 years would have been in recession if we had not had European money," said Cabat, a member on the Board of Directors of CFA, co-founder of Cabat&Pah Investments.
In his opinion, it is the European money that "made the difference and kept Romania at that extra zero and something of the last few years."
"If we don't attract European money, we will see the reality, that is, the fact that the Romanian economy has been in a recession for several years now," Cabat added.
According to him, it is necessary to enter a trajectory of reducing inflation as quickly as possible.
"That can only be done when consumption decreases and there is a recession phase. What could the government do? To attract European money in as much as possible and to allocate to it the parts of investments financed by European money and to ensure that European money is used optimally, so that it has a multiplier effect in the economy and not just to buy imported things from European money."
Cabat believes that a recovery of the Romanian economy could take place in 2027 or 2028.
"The economy would have grown this year if we had all the money from the European Union. But that now appears as a utopia, it is no longer realistic. Normally, a recovery of the Romanian economy could happen in 2027 or 2028, to the extent that we manage to eliminate corruption in Romania. But with a government that does not have the legitimacy and power to continue the reforms that Prime Minister Bolojan's government has begun, there are no chances to change the Romanian economy for the better. And then, any return of the economy to surplus will also mean an increase in the budget deficit and a revival of inflation. It is not necessarily what we want, for Romania's economy to return to surplus in terms of economic growth, because it is an unhealthy growth," Cabat said.
Romania's economy shrank by 1.1% on a seasonally adjusted basis, according to provisional data released on Friday by the National Institute of Statistics (INS).
INS has revised upwards its previous estimate the data on Romania's economy in the first quarter of this year, from a decrease in GDP of 1.7% to 1.2% currently.
