Romanian economy not out of the woods yet, says the European Commission

The economic recovery which is currently underway in EU countries will continue and GDP is expected to grow by around 1.75 percent in 2010-11 and by around 2 percent in 2012 but with uneven progress across member states, according to the European Commission (EC) economic forecast.

“The economic recovery has taken hold. I am encouraged by the prospect that employment is finally set to improve next year in Europe. Public deficits are starting to decline thanks to the consolidation measures taken and to the resumption of growth. However, this recovery is uneven, and many Member States are going through a difficult period of adjustment. A determined continuation of fiscal consolidation and frontloaded policies to enhance growth, are essential to set the sound basis for sustainable growth and jobs. The turbulence in sovereign debt markets underlines the need for robust policy action”, said Olli Rehn European Commissioner for Economic and Monetary Affairs.

GDP growth in 2010 is so far exceeding expectations, especially in the second quarter. The recovery also appears to be broadening out but with uneven across Member States, according to the same source.

Romania’s real GDP growth is expected to decline by 1.9 percent this year as the local economy “remains mired by weak domestic demand”. The situation should turn around in 2011, with real GDP forecasted to increase by 1.5 percent.

“After falling severely in 2009 and 2010, investment should pick up vigorously by 4.2 percent and is expected to be a main driver of growth as companies re-adjust their production lines to meet the increased external demand”, reads the EC report.

The forecast assumes that the authorities do not reverse the fiscal consolidation measures taken in July 2010 but EC representatives voiced concerns that the there are substantial risks that can endanger the fiscal consolidation path. “In particular, there is heavy pressure on the authorities to reverse the fiscal consolidation measures implemented in July 2010 and to revert to policies of unsustainable spending”, according to the same source.

In 2010 the EC says that GDP is projected to contract in Greece, Latvia, Romania, and mildly in Bulgaria and Ireland. By 2011, all EU countries, with the exception of Greece and Portugal, are expected to be out of recession.