The global country risk improved in 2025, with 36 ratings revised positively and only 14 downgrades, according to the latest Allianz Trade analysis. The evolution reflects the ability of several economies to adjust their fiscal, monetary, and trade policies in a difficult international context. Among the countries that have seen improvements are Argentina, Ecuador, Hungary, Italy, Spain, Turkey, and Vietnam.

In Central and Eastern Europe, the trend is mixed. While some economies in the region benefit from solid macroeconomic fundamentals, Romania remains exposed to significant vulnerabilities, particularly in the area of public finances and external imbalances. The domestic economic recovery is slow, and the risks associated with the fiscal and external position have increased considerably, which positions Romania negatively compared to other economies in the region.

Inflation continues to set Romania apart from the rest of the region

Although inflation has entered a downward trend at the regional level, Romania continues to record one of the highest inflation rates in Central and Eastern Europe. Price pressures are fueled by structural rigidities, salary dynamics, and incomplete implementation of monetary policy. This evolution affects the purchasing power of the population and maintains a high level of uncertainty for the business environment. Compared to other economies in the region, the faster moderation of inflation has allowed for a clearer normalization of economic conditions.

Slow economic recovery in a more favorable regional context

After modest economic performance, Romania’s economy continues to recover at a slower pace than most economies in Central and Eastern Europe. Although the regional economic cycle is beginning to stabilize, Romania remains affected by persistent internal imbalances, which are holding back the recovery in demand and investment. Compared to other economies, Poland and the Czech Republic benefit from stronger macroeconomic fundamentals, which allow for a faster normalization of economic activity.

However, Romania’s most important vulnerability remains the significant deterioration of its fiscal and external position. The budget deficit increased to 8.7% of GDP in 2024, due to significant increases in pensions and public sector wages, as well as high spending associated with the electoral cycle. At the same time, the current account deficit narrowed to 8.2% of GDP, reflecting increased imports, weak export performance, and a loss of competitive costs. All these factors have led to an external position that is significantly weaker than the level compatible with economic fundamentals and policies that are considered sustainable. Although Romania continues to maintain its investment grade status, all major rating agencies have revised their outlook to negative, signaling concerns about fiscal sustainability and financing vulnerabilities.

More risky external financing than in other CEE countries

The current account deficit is increasingly financed by debt-generating flows. Portfolio investments represent over two-thirds of external financing, which increases the Romanian economy’s exposure to sudden changes in investor sentiment and financial market volatility.

In order to reduce fiscal and external imbalances, the authorities have adopted a package of fiscal measures, including tax increases and cost-cutting measures. However, financing risks remain high in the context of still large deficits and rising public debt. In addition, the absorption of European funds continues to be slow. At mid-2025, the utilization rate of NGEU funds was around 38% and structural funds around 17% of committed amounts, lower than in other countries in the region. Weak administrative capacity and bottlenecks in public procurement procedures continue to affect the implementation of investments. Although the business environment is considered adequate, the lack of structural reforms in key economic sectors and the slow execution of public investments limit medium-term growth potential. These constraints affect the competitiveness and capacity of the economy to catch up with other economies in Central and Eastern Europe.

“In 2025, the upgrades were driven primarily by stronger macroeconomic fundamentals, supported by more accommodative fiscal and monetary policies. In several emerging markets, better financing conditions, appreciating local currencies, and higher commodity prices allowed for a rollback of transfer and convertibility restrictions, a key dimension of political risk. Among high-income economies, improved political stability, disinflation and stronger trade performance reinforced resilience across Europe (notably Germany, Greece, Italy and Spain) and the Asia-Pacific region (including South Korea and Vietnam)”, states Ana Boata (photo), Head of Economic Research at Allianz Trade.

Political instability is complicating macroeconomic adjustment

Government instability and political fragmentation are affecting the consistency and predictability of economic policies. Recent electoral pressures have contributed to a relaxation of fiscal discipline, amplifying macroeconomic imbalances in a regional and global context marked by uncertainty.

In conclusion, Romania is not facing an imminent crisis, but it remains one of the most exposed economies in Central and Eastern Europe, both because of persistent inflation, high deficits, and rising financing risks, and because of structural constraints that limit its adjustment capacity.

“There are, nevertheless, some positive developments regarding the reduction of the budget deficit by the end of 2025, which should continue in the years ahead.

Indeed, political uncertainties persist and risk derailing the government’s commitments to reduce the deficit, including through the lever of cutting public expenditure (after the first lever of increasing revenues through taxation has already been used). However, we cannot overlook the fact that the imminent risk of a sovereign rating downgrade has been overcome in the short term, and Romania is now borrowing at lower costs compared to the first half of 2025.

At the micro level, assailed by the specter of inflation and delays in collections and payments, companies are showing heightened caution at the beginning of the year regarding their future plans, with an impact on investment and private consumption. In this context, the likelihood increases that, starting in the second half of the year, if not earlier, the discussion about the direction of the economy will shift from inflation (which will not disappear) toward ways to stimulate economic growth, consumer sentiment and, potentially, toward lowering bank interest rates.” concludes Mihai Chipirliu, Credit Director, Allianz Trade Romania.