Bad news for the Romanian economy: EBRD worsens growth projection from 3.6 to 3.2 pct of GDP

Aurel Dragan 08/05/2019 | 15:43

The Romanian economy is expected to register a growth of 3.2 percent this year, compared to a projected 3.6 percent advance in November, according to the latest European Bank for Reconstruction and Development (EBRD) forecasts. For 2020, the EBRD also expects a 3.2 percent expansion of Romania’s GDP.

“We have revised downward the forecast for Romania’s economy this year due to the increased investment risks and the tightening of monetary policy (the central bank has raised the three-hour benchmark interest rate in 2018 from 1.75 percent to 2.5 percent) and an increase in external imbalances. Key risks include exacerbating the current labor market shortage, prolonged weaknesses in the euro area and negative changes in global investor confidence,” the EBRD report said.

The unemployment rate is now below 4 percent, the lowest in the last decade, making it difficult to recruit staff and stimulate wage growth.

“At the end of December 2018, the government steadily introduced a set of measures with a potential negative impact on certain sectors, including banking, pension funds, energy and telecommunications. Although at the end of March 2019 the government mitigated some of the announced measures, investor confidence has been affected, with an expected negative impact on overall economic activity,” shows the EBRD report.

The institution warns that “macroeconomic imbalances have widened, the current account deficit rising to 4.6 percent of GDP in 2018 (from 3.2 percent of GDP in 2017) and the budget deficit reached 3 percent of GDP as a result of policies more relaxed fiscal.”

Inflation is also a concern after reaching 5.4 percent in June 2018, the highest level in the past five years and above the BNR target of 2.5 percent +/- one percentage point. At the end of 2018, inflation was reduced to 3.3 percent.

Among positive aspects, the EBRD emphasizes that general government debt is still low at regional standards, at around 37 percent of GDP.

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