The Convergence Program: Economy will grow by 6.1 pct in 2018 and 5.5 pct between 2019-2021

The Romanian economy will grow with an annual average rate of 5.5 percent between 2019 and 2021, according to the Convergence Program 2018-2021. Domestic demand (consumption and investment) will be the main driver of the growth.

”Private consumption expenditures will increase on average by 5.8 percent annually, given the improvements in the labor market. Gross fixed capital formation will grow at an accelerated rate (8.2 percent annually) due to the improvement of the investment climate and of the financing conditions both from budget sources and from structural and investment funds”, it is said in the Program.

For the year 2018 it is projected an economic growth of 6.1 percent, based solely on domestic demand. It estimated that gross investment (gross fixed capital formation) would increase by 7.9 percent.

The medium-term economic growth will create the conditions for improving employment. Thus, it is estimated that the occupied population will gradually increase until 2021, the structure changing in favor of employees (not self-employed) whose share is estimated to be almost 79 percent in 2021 compared to 75 percent in 2017. Thus, the unemployment rate, according to AMIGO, will gradually decrease from 4.9 percent in 2017 to 4.4 percent in 2021.

The average annual inflation rate is estimated at 4.3 percent for 2018. “The higher level is due to a basic effect, i.e. the exhaustion of the statistical effects of the VAT rate reduction by one percentage point (1 pp) and the elimination of the over-excise on fuels starting with January 1, 2017”, the document points out. Between 2018-2021 the estimated inflation rate, both as an annual average and at the end of the year, will show a downward trend in the absence of other shocks, reaching 2.5 percent ​​(annual average) in 2021.

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Exports will remain a component that will support Romania’s economic growth, with an increase in goods exported by 8.7 percent, while the goods imported will increase by 9.4 percent. The forecast for 2018 shows that the trade deficit will have a share of GDP of 7.3 percent. For the 2018-2021 period, average annual increases in exports of goods are projected to be at 8.6 percent and 9.1 percent for imports. The share of the FOB-CIF trade deficit in GDP will reach 8 percent in 2021.

The current account deficit of the external balance of payments it is expected to reach a value of EUR 6.3 billion, representing 3.1 percent of GDP, and foreign direct investment will cover over 77 percent. In the medium term, the current account deficit will remain at a value of between EUR 6 and 6.3 billion, with a share of GDP of 3.1 percent in 2018 and 2.4 percent in 2021.

The medium-term macroeconomic scenario presented in this program differs from the one in the previous edition of the Convergence Program, in April 2017, as regards the evolution of GDP and its components. Thus, in the previous edition it was estimated that GDP will increase by 5.2 percent in 2017. The economic results obtained by the economic sectors, respectively industry, agriculture and services, led to an increase in GDP of 6.9 percent.

“For the year 2018 and the following years, the forecast has taken into account the positive impact of the measures envisaged in the Governance Program on the business environment and on the purchasing power of the population. As a result, the gross domestic product is expected to increase in 2018 by 6.1 percent compared to the 5.5 percent increase projected in the previous version, mainly supporting the domestic demand. For the period 2019-2021 it is estimated that the Romanian economy will register an average annual growth rate of 5.5 percent”, the document states.

The World Bank recently announced that Romania’s economy will see a 5.1 percent gain in 2018, but warned that this growth is outpacing. A 5% economic growth is also envisaged by the International Monetary Fund, while the European Bank for Reconstruction and Development (EBRD) estimates an increase of 4.6 percent in 2018 and 4.2 percent in 2019. The National Prognosis Commission estimates that this year’s economic growth will be 6.1 percent, followed by increases of 5.7 percent in 2019 and 2020 and 5 percent in 2021.