EME Macro/Strategy: Romania in a global context

• Eurozone backdrop: mildly worsening. Consumer confidence appears to have peaked, investment is constrained by weak demand, high borrowing costs and high uncertainty about the 2025E outlook.
• The risks to the market implied pricing, in our view, are skewed to deeper ECB cuts in 2025-26E.
• The most important mixed blessing: inflation expectations have de-anchored, in our view, but that is not how the central bankers see it. Consumer confidence surveys about expectations show well-behaved inflation expectations, but perceived inflation remains high. The Jackson Hole symposium put a lot of emphasis on better inflation expectations, but also an uncertain monetary transmission mechanism.
• This could mean some monetary easing now, but the full easing cycle could prove to span several years.
• US outlook: pretty good. The labour market is softening, but consumer confidence is holding up, supported by wealth effects. Fiscal policy will remain loose, the AI-driven investment cycle and climate transition keeps investment spending brisk. The Democrats’ likely victory also means less risk of a major worsening in trade barriers.
• Romania: having a good time, while living dangerously. Consumer confidence rose in August, on the back of improving personal outlooks and views about the economy. Services and construction sectors’ confidence point to steady activity and sentiment. However, the industrial sector is weak, just like in the rest of the EU.
• The budget deficit is not tightening convincingly. It can be funded, but at a growing implicit cost, including a delay in the RRF funds.