Romania's Widening Current Account Deficit and Its Implications for Foreign Investors

Romania's current account deficit has surged to 9.5% of GDP in the 12 months to May 2025, a 43% year-over-year increase, driven by a widening trade deficit in goods, rising primary income outflows, and declining foreign direct investment (FDI) inflows. While the services sector—particularly information and communication technology (ICT) and logistics—has provided a partial offset, the structural imbalances in the goods trade and capital flows raise critical questions for foreign investors. This analysis examines the sustainability of inflows, the sectors driving external imbalances, and strategic opportunities for long-term positioning in 2025 and beyond.

The Anatomy of Romania's Current Account Deficit

Romania's trade deficit in goods has expanded to EUR 35.1 billion (17% y/y) in the 12 months to May 2025, accounting for half of the total current account deficit. This is fueled by strong domestic demand for manufactured goods, machinery, and consumer products, coupled with weak domestic production. The services surplus, while narrowing, remains a critical buffer, with ICT and transport services contributing EUR 11.8 billion. However, the primary income deficit—largely interest and dividend outflows to foreign investors—has grown by 21% y/y to EUR 10.3 billion, reflecting Romania's reliance on foreign capital.

FDI inflows, once a stabilizing force, have contracted by 20% y/y to EUR 5.1 billion, with reinvested profits accounting for 80% of the total. This shift signals a decline in fresh investment and a growing dependence on debt-based financing to fund the deficit. The fiscal deficit of 8.65% of GDP in 2024 further exacerbates the imbalance, as public spending stimulates private demand and imports.

Sectors Driving the Imbalance

1. Goods Trade Deficit: Energy and Non-Fuel Sectors
2. Energy Imports: Despite falling oil prices, energy imports remain a drag, contributing 18% of the total deficit.
3. Non-Fuel Sectors: Chemicals (37%), raw materials (22%), and food (15%) dominate the non-energy deficit. Net imports of “other manufactured goods” surged 131% y/y, highlighting overreliance on foreign supply chains.

4. Export Weakness: Romania's exports are heavily concentrated in EU markets (76% of total exports), with non-EU exports declining 7.2% y/y. Sectors like chemicals and machinery face outdated infrastructure and inefficiencies.

5. Services Surplus: ICT and Logistics

6. ICT Services: Romania's skilled, low-cost workforce has made it a hub for IT outsourcing and software development. Bucharest's tech ecosystem hosts global firms like UiPath and Bitdefender, generating EUR 4.8 billion in tourism-related services.

7. Logistics: Strategic location and EU integration position Romania as a logistics hub, with transport services contributing EUR 7.0 billion to the surplus.

8. Primary Income Outflows: Foreign investors' returns on portfolio investments and dividends have grown by 27% y/y, reflecting strong capital inflows into Romanian equities and bonds.

Implications for Foreign Investors

Risks:
- Currency Volatility: A widening current account deficit increases pressure on the leu, potentially raising borrowing costs and deterring capital inflows.
- Fiscal Sustainability: Public debt is projected to reach 54% of GDP by 2025, raising concerns about austerity measures that could dampen domestic demand.
- Sectoral Vulnerabilities: Overexposure to import-dependent sectors (e.g., chemicals, machinery) and EU markets exposes investors to global supply chain shocks and slower EU growth (projected at 0.9% in 2025).

Opportunities:
- Services Sector: ICT and logistics offer high-growth potential. Romania's EU-funded digitalization initiatives and Schengen accession (March 2024) enhance its appeal as a regional tech and logistics hub.
- Renewables and Energy Transition: The government's EUR 2.1 billion fiscal package includes subsidies for solar and wind projects, creating opportunities in green energy.
- Consumer Staples: Import substitution trends in food production and healthcare present resilient demand, insulated from global trade cycles.

Strategic Investment Positioning

Foreign investors should prioritize sectors aligned with Romania's structural strengths and EU integration:
1. Tech and Digital Infrastructure: Invest in Romanian tech firms leveraging EU funding and a skilled workforce.
2. Renewables: Target solar and wind energy projects, supported by government incentives and EU climate goals.
3. Consumer Staples: Focus on domestic demand-driven sectors like food production and healthcare, which face less export risk.

Conversely, caution is advised for sectors reliant on imported raw materials (e.g., chemicals) or EU demand (e.g., automotive parts), which face margin pressures from slower EU growth and supply chain bottlenecks.

Conclusion

Romania's current account deficit reflects deep-seated structural challenges, but its services surplus and strategic location offer a counterbalance. For foreign investors, the key lies in capitalizing on high-growth, domestically oriented sectors while hedging against vulnerabilities in import-dependent industries. As the country absorbs EUR 70 billion in EU funds and advances its energy transition, long-term opportunities will emerge for those who align with its evolving economic priorities.

Investment Takeaway: Diversify exposure to Romania's services sector and renewables while avoiding overleveraged, export-driven industries. The path to sustainable returns lies in leveraging the country's competitive advantages in tech, logistics, and green energy.