Romania has a new government after the parliament passed a vote of confidence in the cabinet of the new Prime Minister (PM) Ludovic Orban from the centrist National Liberal Party. This ended a political crisis that began in August when the center-right ALDE withdrew from the then governing coalition with the center-left PSD under former PM Dancila and culminated in the collapse of Dancila’s government in October. Orban has announced to roll back some of the fiscal and judicial measures implemented under Dancila, for which Romania had been criticized by the EU and concerned investors. However, reigning in expansionary fiscal policies will not be easy until the next parliamentary elections, scheduled for end-2020, as Orban’s minority government will need support from opposition MPs to push through bills. Meanwhile, the economy continues to weaken as industrial production contracted -6.6% y/y and nominal exports -2.5% y/y in August. Real GDP growth slowed from +5% y/y in Q1 to +4.4% in Q2 and we expected it to decelerate further, resulting in full-year growth of +4.2% in 2019 and +2.8% in 2020.
