Romania’s economy poses overheating risks, says Fitch

Rating agency Fitch says that the Romanian economy risks overheating as “wages outpace productivity growth”, while the budget deficit will get close to 4 percent.

The experts of the agency have revised the GDP growth forecast for 2017 up to 5.1 percent from 4.8 percent.

“We forecast growth to slow in 2018 and 2019 as policy stimulus eases, to 3.4% in 2018 and 3.5% in 2019, but it will remain above the ‘BBB’ category median (of around 3%), allowing further convergence of GDP per capita with rating peers,” said Fitch in a statement.

In addition, Fitch forecasts that Romania’s budget deficit will widen to 3.7 percent of GDP this year from 3 percent in 2016. PM Mihai Tudose said recently that Romania will maintain its deficit below 3 percent.

“Cuts in excise duties and VAT have led to missed fiscal targets as tax revenue has remained flat and spending risen. Romania’s budget deficit (cash basis) over the first five months was almost three times as large as a year earlier. We expect some offsetting cuts to government consumption and capital spending (where Romania has a track record of under-execution), while higher wages will increase social contributions,” said Fitch.