Romania – At crossroads once again
Analysis by Divo Pulitika, Board Member, InterCapital ETF
Romania has long been a focal point for international investors with an interest in the CEE region. For many years, discussions centered on the country’s impressive growth and its perceived long-term opportunities. However, over the past six months, the conversation has unfortunately shifted toward potential risks. Hopefully, the country will find the political and social consensus needed to overcome these challenges and return to a path of sustainable growth. In the meantime, here is an overview of how we currently view Romania.
According to Eurostat data, Romania recorded an average real GDP growth rate of 3.10% over the 12-year period from 2013 to 2024 – the longest available period based on the current methodology. This is more than double the EU average of 1.48% per annum and places Romania seventh among EU economies – one of only two large economies in that group, alongside Poland, with the rest comprising Ireland, Malta, Iceland, Cyprus, and Lithuania.
This economic development has benefitted not only Romanian citizens but also international investors with exposure to the country. For equity investors, Romania has offered one of the most lucrative segments outside of pure tech. Between the end of 2012 and May 20, 2025, the total return of the Romanian BET index stood at 17.4% per annum. This performance was outpaced only by the tech-heavy Nasdaq 100 (21.1%) and closely followed by the Slovenian SBITOP index (16.5%). Other major indices lagged behind: the S&P 500 returned 15.8%, the Hungarian BUX 11.4%, the German DAX 9.7%, the Austrian ATX 8.1%, the Greek ASE 8.0%, and the Polish WIG20 just 3.6%. All returns are calculated in EUR.
Romania’s EUR-denominated bond market has also offered attractive opportunities. For many years, the spread of 10-year Romanian EUR bonds versus the German Bund – a traditional proxy for perceived sovereign risk – was relatively stable, fluctuating between 2% and 3%. The spread widened in 2020 to nearly 4%, though this was short-lived and quickly reversed. However, the Russian invasion of Ukraine put renewed pressure on Romanian bonds, pushing the spread to a peak of nearly 6% in October 2022. This was followed by two years of gradual recovery, with spreads narrowing back to around 3%.
That trend reversed again after the EU elections in June 2024, as investor concerns grew over a perceived shift in Romanian sentiment toward Russia. The end of the year was marked by two key developments: the first round of presidential elections, which appeared to confirm this shift; and the warnings from rating agencies regarding Romania’s growing budget deficit.
Combined with global uncertainty, ranging from economic growth concerns to the U.S. elections, this led many investors, particularly international ones, to exit their Romanian positions. Both the reference index BET and bonds declined, with the 10-year spread over German Bunds rising to 4.5% just days before the decisive presidential vote.
Those who maintained their belief in Romania were rewarded. Following the election victory of Nicușor Dan, bond spreads fell to 3.6%, a significant move in bond markets, and the BET index surged by 5.4% on the Monday after the vote. This was a clear signal that investors welcomed Romania’s reaffirmed commitment to a pro-EU path, reigniting positive sentiment toward the market.
One challenge has been addressed, but another remains. Romania’s public finances continue to cast a shadow over long-term market stability. On a positive note, the country’s debt-to-GDP ratio stood at 54.8% at the end of 2024, well below the EU average of 82.2%. However, the European Commission’s Spring Forecast projects a relatively fast increase over the next two years, reaching 63.3% by the end of 2026 (while the EU average remains broadly stable at 84.5%).
Unless the government can reduce the budget deficit, which the European Commission sees at 7.9% of GDP in 2025 and 7.0% in 2026, debt levels could rise to unsustainable levels, placing significant pressure on the economy. This is the primary concern raised by rating agencies, some of which have warned that Romania could be downgraded to so-called “junk” status.
Fortunately, the country now appears more politically aligned on the direction it must take. Both the President and Parliament are pro-EU, which creates the premises for a similar orientation of the new government that will be installed in the coming weeks. The governing coalition and the composition of the government are not known at this time, but consolidating the budget seems to be the priority of the pro-EU parties that could be part of the new government. The European Commission’s May 19th, 2025 forecast notes that its projections “(…) do not include the impact of the tax reform and other measures planned in Romania’s MTFSP, which if properly designed and timely implemented have the potential to materially lower the deficit in 2025 and, to a greater extent, in 2026.”
If budget consolidation is achieved, investors may return eagerly. Romanian EUR bonds offer some of the highest yields in Europe, while equities remain attractively valued with P/E ratios below 10x for the BET index and dividend yields above 5%. These fundamentals are not being ignored but for now, investors are waiting for stronger signs that the country will avoid slipping into junk territory.
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About Đivo Pulitika
Đivo Pulitika is a Board Member at InterCapital ETF. Pulitika began his career in the financial industry while studying at the Faculty of Economics and Business in Zagreb, initially joining Intercapital’s analysis department. Over time, he became the head of this department, where he focused on promoting investments in regional capital markets, conducting stock valuations, and organizing roadshows and conferences for clients. In 2019, he transitioned to InterCapital Asset Management, Croatia’s leading asset management company at a time, where he led the equity analysis department and later became portfolio manager. Pulitika was also responsible for preparing and implementing policies on responsible and sustainable investing. He participated in the creation of InterCapital’s first ETFs from their beginning, and officially took over as their fund manager at the beginning of 2023. His expertise and leadership have significantly contributed to the firm’s success in managing investment funds and individual portfolios for a wide range of clients. With the creation of InterCapital ETF as a separate company in May 2025, Pulitika was appointed Member of the Management Board in charge of further growing the ETF business.
About InterCapital ETF
InterCapital ETF is the first ETF manager in both Croatia and Slovenia and the first international ETF provider in Romania. The company currently manages 5 ETFs with a total of EUR 131 million in assets under management, including: InterCapital Euro Money Market UCITS ETF, InterCapital SBITOP TR UCITS ETF, InterCapital BET-TRN UCITS ETF, InterCapital CROBEX10 TR UCITS ETF, and InterCapital EUR Romania Government Bond 5–10yr UCITS ETF.
InterCapital ETF is part of InterCapital Group, which also includes InterCapital Digital Wealth Management, offering a robo-advisory service through its app, Genius, InterCapital HICP, a real estate-focused alternative investment fund, and InterCapital Securities, the largest broker and market maker in Croatia and Slovenia and a remote member in Romania.