Real GDP growth decelerated to +4% y/y in Q1, down from +6.7% in Q4 and the recent peak of +8.8% in Q3 2017. Domestic demand moderated but remained firm in Q1, with consumer spending up by +5.3% y/y, public spending by +2.4% and fixed investment by +4.8%. External trade activity eased slightly in Q1 as compared to the 2017 average, with exports expanding by +8% y/y and imports by +9.1%, so that net exports subtracted -0.7pp from Q1 growth. Despite the growth slowdown in Q1, clear signs of economic overheating remain in place. Headline inflation continued to rise to 5.4% y/y in May, well above the 2.5% ± 1pp target range of the National Bank of Romania (NBR; the central bank), driven by rapid nominal wage growth (+12.7% y/y in Q1). The NBR has raised its policy interest rate by a cumulative 75bp this year to 2.25 in May. This appears too timid to reduce macro imbalances and facilitate a soft landing of the economy. If policy tightening remains too slowly, imbalances will build up further, requiring a more abrupt tightening later which may result in a hard landing in 2019.