Romania’s economy contracted by 1.7% year-on-year in the first quarter of 2026 (chart), according to flash estimates published by the statistics office INS, as fiscal consolidation measures and weaker domestic demand continued to weigh on activity.

The first-quarter data came in significantly below market expectations. Analysts surveyed by Bloomberg had expected a contraction of only 0.2% year-on-year, while Erste Group projected a 0.7% decline.

In seasonally and working-day adjusted terms, GDP declined by 0.2% quarter-on-quarter during the January-March period.

Under the Eurostat methodology, which is consistent with quarterly readings, the annual contraction reached 2.1% year-on-year.

The detailed breakdown of GDP components will be published on June 5.

According to INS data, Romania’s economic output, seasonally and workday adjusted, has now returned broadly to levels last seen in mid-2023 or mid-2024.

Revised historical data also showed that the economy was nearly flat in the third quarter of 2025, instead of recording a visible decline as previously estimated. The revision limits the number of consecutive quarters of economic contraction to two, although the third quarter of 2025 still showed a marginal negative reading of 0.04%, arguably raising the count to three.

The annual decline in the first quarter largely reflects the effects of fiscal consolidation measures introduced in late 2025, including tax increases and tighter public spending controls. Among others, the public deficit has halved nominally, shrinking to 1.0% of GDP from 2.2% in Q1 last year.

Analysts have increasingly revised their growth forecasts downward amid the prolonged political crisis, weaker private consumption and uncertainty surrounding the absorption of European Union funds.

Erste Group recently cut its 2026 GDP forecast for Romania to a contraction of 0.3%, from a previous estimate of 0.3% growth.

The bank said its revised projection still assumes that Romanian authorities remain committed to maximising the absorption of EU funds available through the Recovery and Resilience Facility during 2026, which could partly offset weak private demand through higher public investment.

However, economists warn that continued political instability could undermine Romania’s capacity to implement reforms required for EU funding disbursements.

The gradual phase-out of Recovery and Resilience Facility financing from 2027 onward is also increasingly viewed as a major risk to medium-term growth prospects, especially as fiscal consolidation efforts are expected to continue.