Romania is currently registering one of the highest fiscal risks in the Central and Eastern Europe and the situation of the local economy bears similarities to the figures that were recorded before the start of the financial crisis, according to Dan Bucsa, lead CEE Economist at UniCredit Bank AG in London.
“We do think that all this fiscal spending (…) will show up in lower investments,” said Bucsa. “So, this assumes that private investments, including machinery and constructions will grow by something like 5-10 percent,” said the economist during the SEE Property Forum.
“The biggest risks are local. Fiscal in Romania by far. The risk was at the level it was in 2008 and if this public spending doesn’t stop, I think Romania risks a huge correction within two years,” added the economist. He mentioned that Romania recorded the biggest increase of wages in the public sector, out all several CEE countries that were assessed by the bank.
The economist explained that Romania is falling behind in the region of investments in infrastructure and the country is struggling to attract EU funds.
According to an analysis on UniCredit, Hungary, Poland and Bulgaria are the member states that are doing a better job on attracting EU money.
Talking about the interest rate environment in the region, Bucsa said that the National Bank of Romania might move to hike the key interest rate next year.
“Romania is likely to be among the first countries to increase interest rates and that could mitigate the fiscal spending,” said the economist. UniCredit expects the central bank to increase the key interest rate three times in early 2018, from 1.50 percent to 2.25 percent.
The European Commission, the executive arm of the EU, has warned that Romania might miss its budget deficit of 3 percent of GDP due to the increase of wages in the public sector coupled with the reduction of taxes.