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Economy of Romania

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Romania's nominal GDP reached approximately $423 billion in 2024, reflecting real growth of 0.9% that year after 2.1% in 2023, propelled by sectors such as automotive industry, information technology outsourcing, and agriculture, though constrained by weak private investment and a widening trade deficit.

Notable trends include sustained employment expansion and growth in high-value industries, yet significant challenges persist, including high fiscal deficits projected at 8.6% of GDP in 2025, corruption hindering institutional efficiency, and significant labor emigration exacerbating skills shortages and demographic pressures.

History

Before World War II

Prior to unification in 1859, the economies of Wallachia and Moldavia were predominantly agrarian, with agriculture employing the vast majority of the population and serving as the primary source of exports, particularly cereals shipped via the Danube to Western Europe. Oil extraction began in rudimentary form in the mid-19th century, with the first systematic refinery operational near Ploiești by 1857, marking Romania as the site of the world's inaugural recorded petroleum production of approximately 275 tonnes annually. Following independence in 1878 and the establishment of the Kingdom in 1881, foreign direct investment primarily from Germany, France, and United Kingdom fueled early resource extraction, though the economy remained overwhelmingly rural, with limited infrastructure and social relations stunted by feudal legacies.

Modern industrialization accelerated from 1886 onward, driven by legislative incentives like the 1887 mining law that encouraged foreign capital while prioritizing extractive sectors. Industrial output expanded 9.6-fold between 1893 and 1913, with annual growth averaging 4.3%, propelled by oil production surging from 25,000 tons in 1887 to 1.848 million tons in 1913 and electricity generation capacity rising from 851 kW in 1888 to 61,657 kW by 1913. By 1913, Romania's GDP per capita reached 1,253 USD (in 2000 purchasing power parity terms), with agriculture comprising 56% of goods value added and manufacturing 35.3%, reflecting a gradual shift from subsistence farming toward export-oriented resource industries amid overall economic growth indexed at 217 relative to the 1862–1866 base of 100.

The interwar period, following territorial expansion into Greater Romania after World War I which tripled the land area and increased the population to about 18 million, saw initial recovery hampered by war devastation and hyperinflation, but average annual GDP growth of 5.8% from 1920 to 1929 supported modernization efforts, including land reforms redistributing estates to over 1 million peasant households between 1918 and 1921. Agriculture retained dominance, contributing 37.82% of value added in 1929 and employing around 70–80% of the workforce, while industry expanded to 27–30% of value added by the mid-1920s, bolstered by extraction of petroleum that doubled from pre-war levels by 1924 and overtook cereals as the leading export by 1930. The Great Depression inflicted severe contraction, with GDP per capita falling at -3.18% annually from 1930 to 1932, triggering industrial slumps and rural distress, though recovery averaged 3.4% yearly GDP growth from 1934 to 1939 via protectionist policies and bilateral trade deals emphasizing raw material exports. These foundations rooted in agrarian exports, oil dependency, and nascent heavy industry positioned Romania as a peripheral European economy reliant on foreign capital and vulnerable to global shocks.

Communist period

After 1945, Soviet-occupied Romania became a member of the Eastern Bloc and switched to a Soviet-style command economy. During this period the country experienced rapid industrialisation in an attempt to create a "multilaterally developed socialist society". Economic growth was further fuelled by foreign credits in the 1970s, eventually leading to a growing foreign debt, which peaked at $11–12 billion.

Romania's debt was completely paid off during the 1980s by implementing severe austerity measures which deprived Romanians of basic consumer goods. Before austerity, Romania had made considerable progress in many areas. Between 1950 and 1973 Romania joined Yugoslavia and Bulgaria in achieving average annual growth rates that were above both the Central European and the West European average. During the first 3 post-war decades Romania industrialized faster than Spain, Greece, and Portugal. The infant mortality rate plummeted from 139 per 1,000 during the interwar period to 35 in the 1970's. During the interwar period half the population was illiterate but under the communist government illiteracy was eradicated. The population became urbanized, women's rights greatly improved, life expectancy grew, among many other achievements. In 1989, before the Romanian Revolution, Romania had a GDP of about 800 billion lei, or $53.6 billion. Around 58% of the country's gross national income came from industry, and another 15% came from agriculture. The minimum wage was 2,000 lei, or approx. $57.

Free market transition

The end of the communist period marked the beginning of a sharp economic downturn. Romania's weight in the global economy dropped to 0.3% in 1993, down from 0.8% in 1983.

Privatisation of industry started with the 1992 transfer of 30% of the shares of some 6,000 state-owned enterprises to five private ownership funds, in which each adult citizen received certificates of ownership. The remaining 70% ownership of the enterprises was transferred to a state ownership fund, with a mandate to sell off its shares at the rate of at least 10% per year. The privatisation law also called for direct sale of some 30 specially selected enterprises and the sale of "assets" (i.e., commercially viable component units) of larger enterprises.

As of 2008, inflation stood at 7.8%, up from 4.8% in 2007 estimated by the BNR at coming within 6% for the year 2006 (the year-on-year CPI, published in March 2007, is 3.66%). Also, since 2001, the economy has grown steadily at around 6–8%. Therefore, the PPP per capita GDP of Romania in 2008 was estimated to be between $12,200 and $14,064.

Romania was the largest U.S. trading partner in Central-Eastern Europe until Nicolae Ceaușescu's 1988 renunciation of Most Favored Nation (non-discriminatory) trading status, which resulted in higher U.S. tariffs on Romanian products. Congress approved restoration of the MFN status effective 8 November 1993, as part of a new bilateral trade agreement. Tariffs on most Romanian products dropped to zero in February 1994 with the inclusion of Romania in the Generalized System of Preferences (GSP). Major Romanian exports to the U.S. include shoes and clothing, steel, and chemicals.

Romania signed an Association Agreement with the EU in 1992 and a free trade agreement with the European Free Trade Association (EFTA) in 1993, codifying Romania's access to European markets and creating the basic framework for further economic integration. Romania formally joined the EU in 2007.

During the later part of the Ceaușescu period, Romania had earned significant contracts from several developing countries, notably Iraq, for oil-related projects. In August 2005 Romania agreed to forgive 43% of the US$1.7 billion debt owed by an Iraq still largely occupied by the military forces of the U.S.-led "Coalition of the Willing", making Romania the first country outside of the Paris Club of wealthy creditor nations to forgive Iraqi debts.

Growth in 2000–07 was supported by exports to the EU, primarily to Italy and Germany, and a strong recovery of foreign and domestic investment. Domestic demand is playing an ever more important role in underpinning growth as interest rates drop and the availability of credit cards and mortgages increases. Current account deficits of around 2% of GDP are beginning to decline as demand for Romanian products in the European Union increases. Accession to the EU gives further impetus and direction to structural reform.

In early 2004 the government passed increases in the value-added tax (VAT) and tightened eligibility for social benefits with the intention to bring the public finance gap down to 4% of GDP by 2006, but more difficult pension and healthcare reforms will have to wait until after the next elections. Privatisation of the state-owned bank Banca Comercială Română took place in 2005. Intensified restructuring among large enterprises, improvements in the financial sector, and effective use of available EU funds is expected to accelerate economic growth. However, the Romanian economy was affected by the 2008 financial crisis and contracted in 2009.

After communism, Romania needed capital infusion, entrepreneurial and managerial skills, the fastest way to obtain that was through foreign direct investment (FDI). As of 2018, total FDI in Romania was 81 billion EUR, 63% of total (51 billion) are greenfield investments. Top ten FDI stock by country of origin in 2018 were: Netherlands (23.9%), Germany (12.7%), Austria (12.2%), Italy (9.5%), Cyprus (6.2%), France (6%), Switzerland (4.5%), Luxembourg (4.2%), Belgium (2.2%) and United Kingdom (2.1%).

Investments in Romania

The level of investment remains above EU average. Investment accounts for almost 25% of GDP in Romania as opposed to 19% of GDP in the EU, in 2016.

Locally, UniCredit, one of the region's leading banking firms, announced in October 2023 that it will merge its Romanian affiliate with the recently purchased Alpha bank in Romania (for €300 million), creating Romania's third-largest lender.

Romania's Recovery and Resilience Plan dedicates over €6 billion to digitalisation efforts, encompassing public administration, connectivity, cybersecurity, digital skills, and the development of an integrated e-health and telemedicine system. The European Investment Bank Project Advisory Support programme aids Romania in advancing digitalisation through collaborations with the National Agency for Public Procurement and the Ministry of Research, Innovation, and Digitalisation

This assistance includes evaluating ICT projects and supporting the rollout of a €600 million government cloud initiative, aimed at enhancing interoperability, reducing bureaucracy, and bolstering cybersecurity.

EU membership (2007)

On 1 January 2007 Romania and Bulgaria entered the EU, giving the Union access to the Black Sea. This led to some immediate international trade liberalisation. Romania is part of the European single market which represents more than 447 million consumers. Several domestic commercial policies are determined by agreements among European Union members and by EU legislation. This is to be contrasted with enormous current account deficits. Low interest rates guarantee availability of funds for investment and consumption. For example, a boom in the real estate market started around 2000 and has not subsided yet. At the same time annual inflation in the economy is variable and during the mid-2000s (2003–2008) has seen a low of 2.3% and high of 7.8%.

Romania adopted 1 January 2005 a flat tax of 16% to improve tax collection rates. Romania subsequently enjoyed the lowest fiscal burden in the European Union, until Bulgaria also switched to a flat tax of 10% in 2007. Since 2018 the flat rate was lowered to 10%.

Romania posted 6% economic growth in 2016, the highest among European Union member states. According to Bloomberg, the country's economic growth advanced at the fastest pace since 2008. It is now considered the next tech-startup hub country in EU. Nowadays, that Romania's digital infrastructure ranks higher than other eastern and central European countries makes it an attractive place to start a tech business.

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