Isarescu, BNR: Uncertainty and risks mainly come from fiscal and income policy and labour market conditions

During a press briefing on Wednesday, the governor of the National Bank of Romania (BNR) said that “from the previous report, the inflation’s trajectory was revised upwards. Uncertainty and risks mainly come from the conduct of fiscal and income policy, as well as from the conditions in the labour market.”

The governor also said that the annual rate of inflation grew from 3.23 percent in November to 3.32 percent in December, which was in the variation interval of the stationary target, but still over the predicted level. The evolution was determined mainly by the acceleration of base inflation and slightly by the increase of volatile prices of food products and tobacco.

The annual rate of adjusted CORE2 inflation continued to grow to 2.5 percent in December 2017, from 2.3 percent in November. In the context of maintaining the tendency of enlarging the aggregated demand surplus in the economy and the increasing production costs (workforce, utilities), the increase applied to all the categories of goods and services, but especially processed foods, additionally affected by some shocks in supply at the European level. The annual rate of IPC inflation continued to increase, reaching 1.3 percent in December after being at 1.0 percent in November 2017.

Revised data regarding the economic growth in Q3 2017 reconfirms the high dynamic of real GDP, of 8.8 percent. The major determinant of this evolution was the consumption in households (8.3 percent), where the annual dynamic grew considerably, reaching a level (12.5 percent) similar to the one before the economic crisis.

The growth in consumption was determined by income growth measures implemented starting July 2017, together with favourable financial conditions and a stimulating context on the labour market.

The contribution of net export to GDP evolution continued to be negative. The current account deficit accelerated its annual growth rate, in the context of a deepening of the negative balance of goods.

Data from the first two months of Q4 2017 show a strengthening of the growing trend of industrial production, together with more new orders in the manufacturing industry, as well as the maintenance of high growth rates of retail and services activity, on the basis of an increase in the real net average salary.

BNR’s new prognosis shows an increase of the consumer price index in the next few months, followed by a stabilisation in the last part of 2018.

Uncertainties and risks regarding the volatility of international financial markets, the evolution of petroleum prices and agricultural products, as well as the rate of expansion of the euro zone are all relevant.