Read below our quarterly newsletter designed to provide key economic information for business leaders.
Fiscal Reforms and marketsโ signals
The most pressing challenge is the budget deficit of 9.3% of GDP in 2024, the highest in the EU, exceeding even the level in the pandemic year 2020 (9.2%). This situation reflects imprudence in budget designing and underestimation of the need for fiscal consolidation, but it can also become a catalyst for long-awaited structural reforms.
The financial markets sent clear signals through four communication channels: the warnings of rating agencies, the fluctuations of the exchange rate that temporarily reached the threshold of 5 RON/EUR during the electoral tensions, the evolution of indicators on the Bucharest Stock Exchange and, last but not least, the intense dialogue with the European Commission for concrete fiscal adjustment measures.
These reactions ultimately represented normal market mechanisms with the role of encouraging the adoption of responsible policies.
After the first 6 months of the year, the budget deficit is 3.68% of GDP, compared to 3.62% of GDP, in the same period last year. Thus, the expenditures and revenues are at the level of last year urging for fiscal measures.
The government has already adopted a first package of tax increases and spending cuts, with the aim of stabilizing finances, but this will not be enough to bring the deficit to 7% or 7.5% of GDP.
Increased taxes: is the economy shrinking?
The first package of fiscal measures, implemented from August 1, 2025, includes VAT in two rates (11% and 21%), an increase in excise duties, an increase in the tax on dividend income to 16% from 2026. All measures in Law 141/2025 are summarized by PwC Romania here.
According to PwC assessment based on Eurostat and European Commission data, the first fiscal package estimated impact will consist in: (i) limited deficit relief, (ii) rising inflation rate, (iii) persistent high interest rates, (iv) stable EUR/RON. Foreign exchange will remain stable. NBR might allow only gradual and limited EUR/RON depreciation. Interest rates will remain high, due to inflationary pressures. Impact of higher VAT and excises when combined with electricity prices caps ending (1st of July 2025) will lead to high inflation rate, with its peak in September (around 9%). Average wages in the private sector will, most probably, stagnate, with inflation impacting the purchasing power of the population.
In this context, economic growth forecasts have been revised downward to 0.5-0.8% for 2025. According to the National Bank, the inflation rate is projected to reach 8.8% at the end of 2025, compared to the previous forecast of 4.6%.
Sectorial impact of increased taxes
The impact of the measures varies by sector, with higher costs across all sectors from VAT and excises increase.
The construction sector will face adjustments from limiting overcontracting in the PNRR and Anghel Saligny programs, after tax incentives were also eliminated earlier this year.
The HoReCa and recreational sectors will be affected by the increase in VAT and the temporary reduction in purchasing power. Real estate will be affected by the increase in VAT to 21%.
For industry, which recorded a moderate growth of only 0.2% in 2024, with the manufacturing industry in decline, the current moment will represent great vulnerability.
Sectorial gross added value evolution year on year (2023/2024)
2nd and 3rd Fiscal packages will mainly consist in:
- Reform of State Owned Enterprises (SOEs), including AMEPIP: revision of KPIs, reduction in the number of board members, and reduction of remuneration; Reduction of subsidies granted to SOEs;
- Public administration reform;
- Amendment of specific legislation (insolvency, claims) and digitalisation of the Tax Administration (transfer pricing โ a particularly important area). At ANAF, bonuses to be granted based on collected amounts rather than imposed amounts;
- Reducing waste in the healthcare system (e.g. fictitious reimbursements extended sick leaves, etc.);
- Special pensions for magistrates (both the retirement age and benefit ratio to be revised) and overall special pensions reform;
- New public wage law (a new wage law is needed that does not reduce incomes but eliminates excessive bonuses. The system should ensure clear, transparent, and predictable remuneration)
- Property taxation for individuals based on the market value of properties
- Taxation of multinational companies – proposed limitation of deductibility of certain expenses in transactions with affiliates
Global Context: US Tariffs
The US and the EU announced a framework trade agreement and released a Fact Sheet on July 28 that calls for the reduction of proposed tariff levels and includes new bilateral investment and procurement commitments.
The 15% US-EU trade tariffs and the pressure to increase defense investments, although representing additional costs, may stimulate the relocation of some production and the development of the defense industry in Romania.
Impacted companies should assess how revised tariff rates, expanded market access, and regulatory changes may impact supply chains and cross-border pricing, and any compliance obligations. For more details, read the full Tax Insight here
Key Takeaways
Romania faces a test of economic maturity: can it transform current vulnerabilities into reforms and progress?
After two decades of remarkable economic growth, GDP per capita at purchasing power parity reached 79% of the EU average in 2024.
This performance confirms the significant progress in European convergence. The standard of living has improved substantially, and the Romanian economy has demonstrated resilience in the face of multiple global crises.
However, regional disparities remain visible in all key indicators: from GDP by region to foreign direct investment (FDI) and the distribution of the labor force by sector, highlighting the need for a more balanced approach to development.
