Romania’s economy to lose speed this year over lack of infrastructure investments, says UniCredit Bank

Analysts at UniCredit Bank forecast a slowdown of Romania’s economy to 4.4 percent this year and 3.5 percent next year, despite an increase in GDP of 5.7 percent in the first quarter of the year

The analysts said in the quarterly macroeconomic report that “we continue to forecast a slowdown of economic growth due to lack of infrastructure works, of reduced productive investments, the agriculture and the negative fiscal impulse”.

For this year, the economy will be boosted by private consumption and retail, while the main engine for fixed investments will be real estate by the end of 2018.

“The fiscal policy remains the biggest risk for growth and macroeconomic stability. The budget revenues as share in GDP are falling, because the reduction of the VAT rate is not compensated by an improvement of collection. The gap in revenue will be covered this year through higher dividends from state-owned companies, keeping the budget deficit below 3 percent of GDP,” according to UniCredit Bank.

On the outlook for the Romanian currency, the analysts forecast that the EUR/RON exchange rate will remain in the 5.00 band, adding there is little risk for a fast depreciation.

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Looking at the key interest rate, which has been stuck at 1.75 percent, the analysts believe that the National Bank of Romania will move to hike it three times starting January 2018.

The bank’s analysts estimate that the planned hike of wages in the public sector, starting with 25 percent in January 2018, might see Romania overshoot the 3 percent budget deficit target for next year.

“The budget revision in August could further harden the fiscal policy. In addition, the transition to a global household tax might not be implemented in 2018 due to the decrease of revenues initially expected (more than 3 percent in the first half of 2018),” said the analysts.