What will drive Romania’s next wave of economic growth? - Commentary

Romania has achieved one of the fastest economic convergence processes in the European Union over the past two decades. GDP per capita in purchasing power standards rose from approximately 44% of the EU average in 2007 to 78% in 2025.
This means Romania closed the gap with the European average by approximately 34 percentage points in less than two decades. The process was uneven, however: the Bucharest–Ilfov region substantially exceeded the EU average, while some regions in the east and south of the country remained below half the European level.

By Ioan Nistor, BT Chief Economist

The model that supported this catch-up is beginning to show its limits.

Economic growth slowed sharply, from 4.2% in 2022 to 2.3% in 2023, 0.9% in 2024 and 0.7% in 2025. For 2026, most estimates point to a nearly stagnant economy, followed by a possible recovery in 2027.

The slowdown is driven by adverse external factors and domestic economic imbalances. Romania can therefore no longer rely to the same extent on stimulating consumption through rapid income increases and fiscal expansion. The country’s next development phase must rest on productive investment, technology, human capital and more efficient use of existing resources.

EUROPEAN FUNDS: THE KEY SHORT-TERM GROWTH ENGINE

The most important immediate support for Romania’s economy remains the absorption of European funds. The National Recovery and Resilience Plan is worth approximately €21.4 billion, equivalent to around 6% of Romania’s GDP. The plan is not the only available source. Under the 2021–2027 cohesion policy, Romania benefits from approximately €30.9 billion in European funds. Together with national cofinancing, the value of the programmes could reach approxi-mately €42 billion. These are supplemented by Common Agricultural Policy resources and the nearly €2.1 billion allocated through the Just Transition Fund.

0.7%

economic growth in 2025;

most estimates point to a nearly stagnant

economy in 2026

In total, the European funds available in the current period amount to more than one-fifth of Romania’s annual GDP. These resources are obviously not spent in a single year, but their scale shows that their absorption could significantly change the country’s infrastructure and productive capacity.

The economic effect occurs on two levels. In the short term, building motorways, railways, hospitals, schools and energy infrastructure generates orders for businesses and jobs. In the long term, infrastructure reduces logistics costs and travel times, expands the markets in which companies can operate and attracts private investment.

PRIVATE INVESTMENT AND RESTORING CONFIDENCE 

Although Romania’s overall investment rate is high, a substantial share is supported by the public sector. Business investment has stagnated in recent years amid weak external demand, high financing costs and frequent tax changes.

Gross fixed capital formation accounts for approximately a quarter of Romania’s GDP, above the EU average of around 22%. This favourable position conceals important differences, however: construction and infrastructure account for a large share of investment, while investment in intellectual property, research, technologies and digital assets is limited.

€125

billion – FDI STOCK

Foreign direct investment has been one of the drivers of convergence. The stock of foreign di-rect investment exceeds €125 billion, but annual flows are volatile and concentrated in manu-facturing, finance, trade and real estate. For foreign investment to support a new phase of growth, Romania needs to attract more projects in research, electronics, energy technologies, pharmaceuticals and high-value-added services.

PRODUCTIVITY, THE CENTRAL DRIVER OF CONVERGENCE 

Romania has rapidly caught up with the European average in labour productivity. Nevertheless, in 2022, productivity per employed person was still approximately 70% of the EU average. Regional differences are very large. In Bucharest–Ilfov, productivity exceeded 130% of the EU average, while in the North-East region it stood at around 40%.

These figures point to two economies within the same country. Major urban centres attract capital, foreign investment, professional services and skilled workers. In many rural areas and small towns, low-productivity activities, inadequate infrastructure and insufficient investment predominate.

Productivity becomes all the more important as labour costs rise. Over the past decade, Romania’s average nominal wage has risen very rapidly, outpacing productivity at certain times. This has improved living standards but reduced the competitive advantage based on cheap labour.

Romania needs to move from growth based on expanding employment and accumulating capi-tal to growth based on efficiency, technology and added value. This entails automation, modern equipment, better management and the development of proprietary products.

DIGITALISATION OF COMPANIES AND SMEs

Romania has some of the best fixed connectivity infrastructure in the EU, but companies make insufficient use of this advantage. In 2024, approximately 73% of European SMEs had achieved at least a basic level of digital intensity. In Romania, the proportion was much lower, although it has risen in recent years.

44%

of Romanian SMEs

had reached at least a

basic level of digital

intensity in 2025

The data indicate that approximately 44% of Romanian SMEs had reached at least a basic level of digital intensity in 2025. Only 21.7% had high or very high digital intensity, compared with 32.7% across the EU. The gap to the European average was therefore approximately 11 percentage points.

Digitalisation should not be measured solely by internet access or the existence of a website. Productivity gains come from using integrated management systems, e-commerce, cloud ser-vices, data analytics, automation and artificial intelligence.

REVITALISING INDUSTRY 

Industry remains one of Romania’s main exporting sectors, but its share of the economy has declined. While industry accounted for almost 25% of gross value added in 2015, its share had fallen below 17% by 2025.

Industrial production fell by approximately 0.9% in 2025, following several years of weak per-formance. Manufacturing was affected by the stagnation of the German economy, a decline in external orders, energy costs and rising labour costs.

► Revitalisation need not mean restoring industry’s share of GDP to 25%. A modern economy can have a smaller industrial share but higher added value. The goal should be to ex-pand design, research, industrial software, electronics and advanced manufacturing.

Increasing the share of local suppliers and research activities would allow a greater proportion of value to remain in the Romanian economy.

RESEARCH AND INNOVATION 

Research is one of the areas in which the gap with the EU remains very large. In 2024, Roma-nia’s total research and development expenditure amounted to just 0.46% of GDP. The EU average was 2.24% of GDP, equivalent to approximately €403 billion.

Business expenditure on research amounted to approximately 0.29% of GDP, against a Europe-an average of 1.49%. For SMEs, the figure was approximately 0.04% of GDP, compared with 0.43% in the EU. Proportionally, Romanian SMEs therefore invest more than ten times less in research than the European average.

While industry accounted for almost 25% of gross value added in 2015, its share had fallen below 17% by 2025.

The problem is not only the amount of funding but also its fragmentation. Research projects require continuity over several years, stable teams and equipment that cannot be financed effi-ciently through programmes launched sporadically.

Romania could concentrate resources in areas where it already has expertise: information technology, cybersecurity, the automotive industry, artificial intelligence, precision agriculture, energy, biotechnology and medicine. Doubling research expenditure would not have an imme-diate effect on GDP, but could increase productivity and exports over the medium term.

ENERGY AS A COMPETITIVE ADVANTAGE 

Romania has a diverse energy mix: hydropower, nuclear power, natural gas, coal, wind and so-lar energy. It is one of the few countries in the region with significant domestic natural gas production.

Even so, the prices paid by businesses have been high. In the first half of the year, electricity prices for non-household consumers were among the highest in the EU. Gas prices for busi-nesses were also high despite domestic production. Energy costs are crucial for metallurgy, chemicals, fertiliser production, cement, glass and building materials. In some of these activities, energy can account for between 20% and 50% of total production costs. A 10% difference in the price of energy can determine whether an industrial facility operates in Romania or another country.

Natural gas resources in the Black Sea can reduce dependence on imports and turn Romania into a regional supplier. The greatest economic benefit, however, will not come from extraction alone. Gas can support flexible electricity generation, fertiliser production and other petro-chemical industries.

At the same time, the rapid expansion of solar and wind capacity must be accompanied by in-vestment in grids and storage. Without these, new facilities cannot be connected or generate electricity at times when the system cannot use it efficiently.

AGRICULTURE AND THE FOOD INDUSTRY 

Agriculture accounts for approximately 3% of Romania’s economy, more than twice the EU av-erage. At the same time, a much larger proportion of the employed population works in agri-culture, indicating low productivity.

Romania has one of the largest areas of agricultural land in the EU and is frequently among Europe’s leading producers of maize, sunflower seeds and wheat. Nevertheless, output is vola-tile and strongly affected by drought. This volatility highlights the need to invest in irrigation, agricultural insurance, resilient crop varieties and precision technologies.

The structural problem is that Romania exports large quantities of grain and imports processed food products.

Precision agriculture can deliver substantial gains. Sensors, weather data, satellite monitoring and targeted fertiliser application can reduce costs and water use while improving yields per hectare.

The food industry is also the link through which agricultural production can generate even more added value. It can thus become one of the most effective ways to turn Romania’s agricultural advantage into a lasting driver of economic growth.

INFRASTRUCTURE AND REGIONAL DEVELOPMENT 

For decades, the limited extent of fast transport networks has been one of the main con-straints on Romania’s economy. The motorway and expressway network has grown in recent years, but its density remains far below that of Western European economies.

The benefits of new corridors extend beyond shorter travel times. A motorway can expand the area from which a company recruits employees, reduce required inventories and turn a sec-ondary city into an investment destination.

The motorways in Moldavia can better integrate the North-East region into national and European economic networks. Connecting the Port of Constanța to the rail and road networks will strengthen Romania’s role in transport between the Black Sea and Central Europe.

The reconstruction of Ukraine could create significant demand for building materials, transport, financial services, energy and consulting. Romania can benefit from its geographical position, but only if port, rail and customs infrastructure is sufficiently efficient.

DEFENCE INDUSTRY 

Rising military expenditure could become an additional driver amid a deteriorating geopolitical environment. Romania has committed to defence spending of at least 2% of GDP, and that level could rise in the coming years.

The defence industry will generate dual-use technologies: drones, communications, cybersecu-rity, sensors, advanced materials and autonomous systems. These technologies can subse-quently also be used in agriculture, logistics, energy or other industries.

A NEW GROWTH MODEL 

The drivers of Romania’s economy operate over different time horizons. European funds, infra-structure and construction can support activity immediately. Industry, energy, digitalisation and private investment can deliver results within a few years. Education, research and improve-ments in the quality of public administration take longer, but determine the growth potential for the next decade.

In the short term, the priority is to avoid a combination of disorderly fiscal consolidation and stalled investment. Romania must reduce its deficit while protecting projects financed with Eu-ropean funds and expenditure that has a strong effect on productivity.

In the medium term, energy, the defence industry, advanced manufacturing, the food industry and technology services could become important sources of growth. This requires private in-vestment, tax stability and the integration of local suppliers.

In the long term, the outcome will be determined by productivity. An economy with a shrinking working-age population cannot grow quickly simply by adding more workers. It must produce more with the resources it already has.

Romania does not lack resources: it has European funds, a substantial industrial base, energy resources, agricultural land, digital infrastructure and access to the single market. The main constraint is its ability to turn these resources into productivity and added value.

Real revitalisation will not consist of a temporary return to 4–5% growth financed by deficits. It will mean an economy capable of growing steadily by 3% or more without continually accumu-lating fiscal and external imbalances and inflationary pressures. That is the difference between a cyclical recovery and a new development model.