The Romanian manufacturing industry has gone through a difficult period in recent years. While the annual growth rate of production volume in the manufacturing industry exceeded 5.7% between 2005 and 2018, it turned negative, -1.3%, in the period after 2018. Although the challenges of recent years have affected the entire European Union (EU), not all countries in the CEE (Central and Eastern Europe) region have experienced a similar contraction since 2018. For example, manufacturing in Poland grew by 4.2% annually, in the Czech Republic by approximately 0.3%, and in Hungary by 0.7%. German industry, a driver of industrial growth in the CEE region, suffered greatly after the tariff war during President Trump’s first administration, falling by more than 2% per year after 2018.

Certain industrial sectors in Romania experienced an even more pronounced contraction during the same period: production in the clothing industry fell by 12% annualy, and the furniture industry by 4.6%. There are, some sectors that are performing relatively better, such as the food industry, which has grown by 2.6% annually over the last six years. At the same time, however, the number of employees in the manufacturing industry has fallen significantly.

From a historical perspective, Romania’s industry managed to grow and become more efficient after a difficult transition period dominated by failed privatizations in the 1990s, subsequently becoming competitive in the context of free markets. Romania’s preparation for EU accession, and accession itself, brought a long period of dynamic industrial development (2005-2018). This period of significant success for Romanian industry could not be halted even by the economic and financial crisis of 2008-2009. However, the last six years have seen a structural decline: industrial production and the contribution of the industrial sector to the country’s GDP have fallen, coupled with a decline in the proportion of the workforce employed in industry.

In this analysis, we will first explore the long-standing phenomenon of macro-structural changes in Romania, with a focus on the recent process of industrial decline. We will also present the main causes of this phenomenon, followed by a discussion on the future of Romania’s industrial sector.

Structural changes in Romania’s economy

Over the past 30 years, Romania’s economy has undergone significant macro-structural changes: the importance of the service sector has grown, while the share of the industrial sector in the economy has shrunk. Thus, the number of employees in Romanian industry fell by approximately 1.1 million between 1995 and 2025, from 2.4 million to 1.3 million. Compared to other countries in the region, the trend in Romania is even more worrying: in Hungary and the Czech Republic, the number of employees in the industrial sector remained almost constant during the same period, while in Poland it increased by 200,000.

We have seen an almost constant decline since 2000 in some industries, such as the clothing industry, where the number of employees fell by 200,000 between 2000 and 2025. In the automotive industry, the number of employees increased until 2018, after which it has decreased by 60,000 to date. It should be noted that there are industries, such as the food industry, which have expanded since 2000. In this industry, the number of employees has increased from approximately 160,000 to 180,000 today.

The transition from an industrial economy to one based predominantly on services is a well-known phenomenon in advanced economies such as the United States or Western European countries. The main reasons are changes in the structure of domestic supply and demand, as well as changes in the structure of international trade. In general, the relative share of industry in the economy declines as the level of economic development increases (measured in terms of GDP per capita), although there are some exceptions. An example of the general trend is the manufacturing industry in the US, where the number of employees fell by around 5 million between 1995 and 2023, in parallel with strong economic growth. In France and Germany, this decrease was approximately 800,000 and 700,000 employees (BEA, Eurostat). During the same period, the share of manufacturing in total employment in China—a country with a lower level of economic development at the beginning of the period—increased from 23% to 32% of total employment, according to ILO estimates.

Even though the number of employees in Romania’s industry saw a sharp decline similar to that in developed countries, production volume grew dynamically until 2017. Thus, we cannot speak of a general deindustrialization in Romania’s economy until 2017. These seemingly paradoxical trends can be clearly explained by the increase in labor productivity in this sector.

Causes of industrial decline in Romania

There are numerous explanations for the macro-structural changes related to industry in Romania—among them, there are four that we consider especially important.

  1. The manufacturing industry in Romania underwent a process of efficiency improvement after the 1989 revolution, especially in the new millennium, marked by a significant improvement in labor productivity. As a result, the number of employees has decreased, while production has increased significantly. More specifically, real production increased by an average of 4% per year between 2000 and 2018, while the number of employees decreased by almost 500,000. This efficiency process was necessary as a result of the legacy of communism, which operated large, unproductive industrial companies that had to be restructured in order to survive in a free competitive market.
  2. Real wages in Romania have generally grown faster than labor productivity, which has reduced the competitiveness of Romanian industry on international markets (especially in sectors that rely heavily on human resources, such as the textile and clothing industry). The increase in energy prices following Russia’s invasion of Ukraine also contributed to higher industrial costs in Europe and Romania. As a result, the domestic industry came under serious pressure from international competition. For example, imports of textiles from outside the EU (such as Asian countries) have increased from €400 million in 2002 to €860 million in 2025. The relatively high costs and relatively low productivity of some industries in Romania have reduced the competitiveness of their products on both international and domestic markets.
  3. As Romania prepared for EU integration, its industry became increasingly integrated into European supply chains, thus becoming dependent on the performance of export industries in Western Europe. Economic stagnation in Western countries such as Germany has reduced opportunities for expansion in certain industries, such as the automotive industry and the manufacture of equipment and machinery. We observe a stagnation in exports from these industries to Germany, as well as a decrease in the number of employees in Romania after 2017, when the German economy began to stagnate. The tariff war launched by the Trump administration in 2018 is one of the main reasons behind the weak demand for Romanian exports—partly directly, through reduced US demand for Romanian products, but especially indirectly, through the weakening of the economies of Romania’s major trading partners in Western Europe. Similar measures by the current US administration are also leading to similar effects.
  4. The collapse of global demand following the COVID-19 pandemic and disruptions of global supply chains also contributed to the decline in domestic and international demand for Romanian industrial goods.

The future of Romania’s industrial sector

The domestic industry is currently under pressure from several factors: high production costs, strong international competition, and economic stagnation among its trading partners in Western Europe. In addition, the complicated geopolitical situation will most likely pose another major challenge in the future. Tensions in the Middle East may keep energy prices high in the coming years, and Western European countries do not seem to be overcoming their domestic economic challenges easily, which is hindering industrial growth. Furthermore, the recent customs tariffs imposed by the US, and a potential increase in these tariffs in relation to the EU, would further reduce the potential of European industry and, implicitly, of Romania.

Domestically, fiscal measures may also decrease the volume of industrial production in Romania. Although these measures are absolutely necessary to restore budgetary balance, they may at the same time reduce domestic demand for goods and increase production costs due to tax increases. Even so, if financial markets have confidence in the potential of these measures to resolve the budget deficit issue, Romania could once again become a preferred target for foreign investment, which could revitalize the industrial sector.

Another important perspective concerns the increase in defense spending in the coming period—NATO countries agreed to increase it to 5% of GDP by 2035 at the Hague summit, which would represent a major change for European industry. The production of military equipment could represent a major opportunity for Romania’s industrial sector. If Romania could direct part of this increased demand toward local industry, the domestic heavy industry could benefit significantly over the next decade.

In the context of rising geopolitical tensions, there is also the possibility of Western countries adopting “friendshoring” strategies to protect supply chains from shocks such as military conflicts or pandemics. Romania’s status as a member of the EU and NATO could significantly support the relocation of strategic European industries to Romania, which could slow down or even reverse the process of industrial decline seen over the last six years.