Romania’s election: macro stability in the balance

Romania will elect a new government over the coming weeks at a time when the economy is performing poorly, inflation is running above target, and macroeconomic stability depends on policymakers pushing through much-needed fiscal consolidation. The most favourable outcome for investors would probably be the continuation of a centrist majority coalition, but even in this scenario we think that overcoming Romania’s macro challenges will be difficult. In the event of a more fractured (or minority) coalition, the risks would be skewed to larger currency falls and higher bond yields than we currently forecast.