EC projects mild recession in the Euro zone; Romanian economy to grow by 1.6 percent this year

The European Commission projects that stagnation will engulf the EU this year, while euro zone GDP will contract by 0.3 percent. Last autumn, the Commission estimated the EU should post 0.6 percent in growth this year, while the euro zone economy should have expanded by 0.8 percent.

Romania’s economy should grow this year by 1.6 percent, down from 2.1 percent estimated last autumn. Exports will lose pace this year, as the EU market accounts for 70 percent of export destinations, so domestic demand will be the main growth driver in 2012. The EC says private consumption should pick up in the second half (H2) of 2012, as jobs will start to be created and inflation will go below 3 percent in H1 before going up again, still remaining in the 3 percent zone.

However, private investments planned for early 2012 will be delayed to H2 of this year or next year, due to uncertainty in the domestic and global markets.

GDP growth could be boosted even more by absorption of EU funds and possible pre-electoral slippages, which should increase domestic demand.

Bank lending to the non-financial sector in Romania increased by 6.2 percent y/y last November, although credit demand remained low across the EU.

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Credit growth declined in Italy, and to a lesser extent in France. Demand remained low in Greece, further decreasing in Spain and Portugal. Demand in the Netherlands and Germany is also decelerating. Credit demand in Poland, the Czech Republic and Hungary has also receded.

The commission’s  autumn forecast  said the economies of Greece and Portugal will slip into recession this year, but the latest projections adds Belgium, Spain, Italy, Cyprus, the Netherlands, Slovenia and Hungary to the list of states where GDP will shrink.

Ovidiu Posirca