Appreciation of the Romanian Leu Boosts Nominal GDP and Fosters Growing External Deficits
Revised Article:
Romania's nominal GDP soared to EUR 354 billion in 2024 and hit EUR 358 billion in the first four quarters of 2025, doubling from EUR 177 billion in mere six years. But the dazzling growth figures have misled many, according to recent analyses.
The eye-catching 100% increase in just six years, boasting an average nominal growth of 10% per year, is heavily skewed by external factors such as the eurozone inflation and the real appreciation of the Romanian leu. A detailed breakdown reveals that euro area prices escalated by 24% over the six-year period, while the leu strengthened by a striking 29% in real terms against the euro.
Once you peel away these external factors, Romania's real GDP growth from 2019 to 2025 clocks in at a more moderate pace of 35%. This equates to an average annual increase of a still impressive 5.83%, but nothing near the initial figure might suggest.
The leu's real appreciation has been particularly rapid in recent years, surging by 8.4% over the past three years alone: 2.9% in 2022, 5.2% in 2023, and 3.3% in 2024. This upward trend is primarily driven by substantial external borrowing to cover budget deficits, rather than consistent inflows of foreign direct investments as seen in 2005-2007.
Moreover, the transfers under the Cohesion and Resilience facilities have added pressure on the leu over the past six years despite the incomplete absorption of total budgets.
These inflows have bolstered currency strength but also contributed to Romania's growing external imbalances. At Q1 2025, Romania's demand for consumption and investments was covered by net imports to the tune of 7.5%.
The apparent skyrocketing of nominal GDP may give the impression of a breakneck economic expansion, yet it hides the relatively sedate pace of Romania's real economic progress. Furthermore, this growth trajectory reflects the profound influence of financial and institutional inflows on exchange rates and trade balance.
In other words, the relentless climb in Romania's nominal GDP, though handy for comparing fiscal ratios and planning budgets, fails to deliver a precise picture of its genuine economic advancement. After all, in the four quarters ending March 2025, Romania's GDP expanded by just 0.43% y/y, while the nominal figure in euros jumped by 7.5% y/y.
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Enrichment Insights:
- 2009 to 2018: Over the initial nine years from 2009 to 2018, Romania's real GDP growth experienced fluctuations, with the real growth rate swinging from negative growth (-1.24%) in 2009 to robust expansion of over 5% in 2017. In the depths of the global financial crisis, 2009 saw a contraction of around -1.24%, but by 2012, the economy began recovering, hitting growth rates of over 3% by 2015. However, in 2018, growth slowed to a mere 1.11% as domestic political uncertainties affected consumer and business confidence.
- 2019 to 2021: The real GDP growth during this period shows a strong surge, reflecting a post-pandemic recovery. In 2019, before the COVID-19 pandemic, the growth was buzzing at about 3.92%, and in 2021, it soared to 5.55%. In contrast, 2020 saw a drastic fall of around -3.67% due to the pandemic impact[1]. By 2022, Romania's real GDP growth stabilized at approximately 3.97%, indicating ongoing economic resilience[1].
- Forecasts for the remaining years suggest a more conservative real GDP growth rate, with a growth rate of 1.6% predicted for 2025[2].
- The apparent growth in Romania's nominal GDP, while significant, does not accurately represent the country's genuine economic development, as it is heavily influenced by external factors such as the eurozone inflation, the real appreciation of the Romanian leu, and external financial inflows.
- The financial inflows, including those from the Cohesion and Resilience facilities, have contributed to Romania's growing external imbalances by bolstering currency strength but also creating pressure on the leu, potentially masking the true pace of Romania's real economic progress.
