Recession Looms, but Won’t Be Too Severe, Says Analyst Interviewed by Krónika

Recession

According to Csaba Bálint, there will not be a deep recession similar to 2008–2009 or 2020

Fotó: Román Nemzeti Bank

„The economic situation in Romania is currently so severe that the country is already standing at the doorstep of recession.” „Romania could already be in recession.” „Only a miracle could save us from recession.” These are just a few of the statements from experts we have encountered as of recent. Is recession really upon us? If so, what impact will it have on our everyday lives? – we asked Csaba Bálint, member of the Board of Directors of the National Bank of Romania (BNR), whom we also questioned about the expected short- and long-term effects of deficit-reducing measures.

Bálint Eszter

2025. augusztus 28., 19:332025. augusztus 28., 19:33

„The Romanian economy is definitely in a difficult situation. But before we get into details, I think it’s worth pointing out that there are several types of recession” – replied the economic analyst to our first question. He reminded us that if we look at the literature, there is no universally accepted definition of recession. The so-called technical recession means that gross domestic product (GDP) decreases for two consecutive quarters; according to Csaba Bálint, this can be considered the very mildest form of recession.

A technical recession seems unavoidable

The likelihood is much greater that Romania will „go through a technical recession in the next few quarters.”

„This is entirely in the cards,” the central bank expert explained. The silver lining, however, is that according to him, the probability of a true deep recession – one that would bring a longer-lasting economic downturn and a significant increase in unemployment, such as what we experienced during the 2008–2009 crisis or in the pandemic year of 2020 – is still very moderate. A technical recession, on the other hand, seems unavoidable in the coming period – and the reason is already well known: the ballooning budget deficit.

Development needs a solid foundation

„If we truly want to develop, to catch up with our western neighbors, to approach the standard of living of Western Europe, the United States, or certain developed Asian countries, then that cannot be built on sand. Discipline is needed, a disciplined budget, and this has been sorely lacking in recent years.

Idézet
This is not a new problem – the budget deficit has been a central issue for many years, but last year it became extremely acute and evident, exceeding 9 percent”

– stated Csaba Bálint, pointing out the grim reality.

korábban írtuk

August Brings Price Increases Across the Board: Here's How Much the Prices of Various Products and Services Will Rise
August Brings Price Increases Across the Board: Here's How Much the Prices of Various Products and Services Will Rise

As of August 1, shoppers will have to dig deeper into their pockets – partly due to a 2–12% increase in the value-added tax (VAT), and partly due to the rise in excise duties.

And what this means for the state coffers, he illustrated in simplified terms as follows: If we look at last year’s GDP as 100 lei, then it can be said that 34 lei flowed into the budget from various sources, while 43 lei were spent. „If we look at a household’s finances, and 34 lei comes in, but 43 goes out, then it’s completely obvious that this is unsustainable. You cannot build long-term economic convergence and growth on such a budget. And the problems generated by the budget deficit spill over into many other areas as well,” explained the expert.

As an example, he first mentioned the deficit in the foreign trade balance. The reason, he explained, is that the state sector spends far more than its revenues allow. This doesn’t always stimulate imports directly, but it does so indirectly – at a time when Europe is going through a difficult period marked by the energy crisis, war, and other challenges. As a result, Romanian exports, which are largely directed toward Europe, cannot perform well.

And then there’s inflation.

„In the surrounding countries – Poland, Czechia, Hungary – we could see that the situation improved greatly, while in the eurozone the inflation problem has essentially been solved, with the 2 percent target achieved. But here in Romania, the slowdown of inflation has stalled, and this too can largely be traced back to the budgetary problem” – emphasized the analyst interviewed by Krónika.

He also named the very rapid growth of Romania’s public debt as another problem.

Its amount has already reached 55 percent of GDP, and next year will probably be around 60 percent. “In a European comparison, this is not high – in fact it is below average – but its dynamics, its trend, are particularly worrying, and in a higher interest rate environment, the growing public debt places additional burdens on an already problematic budget.

The high financing costs of the budget also negatively affect the private sector – everyone pays the price. It is completely obvious that things cannot go on like this”

– the economist stressed.

Recession Galéria

Those missing 6 lei must be found. A deep recession seems avoidable, but a technical one much less so

Fotó: Orbán Orsolya

He went on to emphasize once more: this budget deficit of around 9 percent must be reduced to around 3 percent. Using the earlier example, this means that from the 9 lei difference between the 43 lei in expenditures and 34 lei in revenues, the source for 6 lei must be gathered in order to reduce the deficit to a sustainable 3 percent.

It is precisely these 6 lei that the government wants to “find” through deficit-reduction packages.

One precursor of such a package was last year’s so-called omnibus ordinance, which was then followed by the first real package that came into force on August 1, with numerous tax increases, and in January further tax hikes will take effect. The governing coalition is currently working on the second package, which is already seeking solutions to cut expenditures – and for this very reason, according to Csaba Bálint, it will be much harder to push through than the previous one. And a third package can also be expected.

A glimmer of light at the end of the tunnel

„For households, companies, and businesses, all this is a serious burden that will definitely leave its mark over the next 9–12 months. That’s how long it will take before the effects of the measures begin to show and the budget deficit figures start moving in a favorable direction” – projected the central bank official, who at the same time outlined a positive future scenario. „If we manage to get through this critical 9–12 month period, then I believe that – just as it happened in 2010–11 – a new cycle of economic growth could begin,” he concluded, drawing attention to the fact that the first positive effects are already starting to appear:

  • interest rates have begun to decline,
  • Romania’s risk of default has been significantly reduced,
  • international credit rating agencies have evaluated these steps positively, and the stock market reaction was also positive.

    korábban írtuk

    Küszöbön a recesszió, de nem lesz annyira durva a Krónikának nyilatkozó elemző szerint
    Küszöbön a recesszió, de nem lesz annyira durva a Krónikának nyilatkozó elemző szerint

    Tényleg nyakunkon a recesszió? Ha igen, milyen hatással lesz a mindennapjainkra? – tettük fel a kérdést Bálint Csabának, a Román Nemzeti Bank (BNR) igazgatótanácsa tagjának, akit a deficitcsökkentő intézkedések hatásairól is faggattunk.



    „The process has begun, but it will be important to see whether from now on the budget really does turn in the right direction, and how the economy reacts over the next three to four quarters, what the social and real-economic reactions will be. In the short term, there are still questions, such as political cohesion; naturally, when very painful steps need to be implemented, tensions always appear, as these measures hurt a lot of interests. So in this respect, the next period is critical. But I would emphasize once again that a positive scenario similar to what we saw after 2010–11 is also imaginable” – the economist underscored. Adding, however, that this must be worked for.

    No other way out

    At the same time, the question arises: what happens if the darkest scenario comes true, meaning political infighting turns into a political crisis, and the government cannot even push through the second package.

In response, Csaba Bálint argued that Romania is in such a tight position that there are not many alternative scenarios – in other words, no matter who is in power, this must be fixed, „those 6 lei must be found.”

However, if there are delays and the measures stall, then indeed we could return to the very tense situation we were in just a few months ago – warned Csaba Bálint, who said it is not good to keep bringing up these default risks. “A very significant part of the measures has already taken place, they started on August 1, which is a very important step, strengthening confidence in Romania. Now, in the coming period, the focus must be on weathering this time with some form of social, political, and governmental cohesion, and then the results will be visible. So there is a way out of this situation” – the analyst underlined.

„It will hurt, but not too much”

The VAT increase as well as the removal of the price cap on electricity are already being felt, and during the mentioned 9–12 month period many more measures are expected to hit Romanian wallets. „How painful will it be?” we asked Csaba Bálint.

Idézet
If I want to summarize very briefly: this will be a painful period for households and companies

– he replied, while also noting that since the economic downturn will not be as deep,

the impact of the austerity measures will also not be as drastic as during the 2008–09 crisis or the pandemic year of 2020.

According to the member of the BNR Board of Directors, we will certainly feel the decline in purchasing power – some more, some less, but in any case with greater household financial resilience than in 2009. This, according to expectations, will inevitably result in a temporary drop in consumption. But there is some hope in the fact that – if all goes well – from the middle of next year the situation is expected to genuinely start improving.

korábban írtuk

The Government is Recklessly Spending Money, the Deficit is Concerning – Says Csaba Bálint, Returning Member of the Central Bank’s Board
The Government is Recklessly Spending Money, the Deficit is Concerning – Says Csaba Bálint, Returning Member of the Central Bank’s Board

„Although it was anticipated that this year’s ‘super-election year’ would witness unprecedented spending due to continuous campaign giveaways, the Bucharest government has spent even more than expected. As a result, the budget deficit, which was high to begin with, is expected to rise to around 8%,” said Csaba Bálint, a returning member of the Board of Directors of the National Bank of Romania (BNR), in an interview with Krónika.

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