European Commission issues economic forecast

The European Commission estimates a lower economic growth and a higher budget deficit for Romania

Ştefan Stoica, 16.11.2023, 13:50

The National
Strategy and Forecast Commission in Bucharest has downgraded the economic
growth forecast for 2023, from 2.8% to 2%, invoking the shrinking of the
industry sector and the unexpectedly poor performance of the agriculture
sector. The European Commission too revised its forecast for Romanian economy,
from 3.2% as estimated in May, to 2.2%. The reasons behind the economic
slowdown, according to the European Commission, include soaring inflation,
which limits available revenues, tougher financial conditions and external
demand. Next year, Romanian economy is expected to grow by 3.1%, below the
spring forecast of 3.5%. In 2025, the economy will go up 3.4%.

According to the
Commission, over the next couple of years, economic growth will rely on robust
increases determined by available income, a lower impact of rising interest
rates and the resistance of consumption and public investment. While private
consumption is expected to slow down, investments will remain the key
contributor to GDP growth in the examined interval, the European Commission
autumn report shows. As regards budget deficit, the Commission says it might
reach 6.3% of the GDP in 2023, which would be tantamount to the level of last
year. This would be a radical increase compared to the 4.7% estimate announced
in spring. The European Commission expects the budget deficit to go down to
5.3% of the GDP in 2024 and to 5.1% in 2025, as a result of fiscal
consolidation measures that will take effect in January. Nevertheless, curbing
the budget deficit based on these measures might be in part countered by
personnel-related spending.

The European Commission says that its forecast does
not factor in the short-term potential impact of the pension reform the
government is currently implementing. This will entail recalculating pensions
and significantly increasing most of them. Romania is currently under excessive
deficit proceedings, and unless it manages to bridge the gap between public
spending and revenues, it risks losing dozens of billions worth of EU funds.
With respect to inflation, the European Commission says the downward trend of
inflation will produce effects only starting next year, once it falls in line
with the targets of the Central Bank. For 2023, the European Commission expects
a slight decrease in inflation, from an average of 12% in 2022 to 9.8%. The
inflation rate is expected to go down to 5.9% in 2024 and to 3.4% in 2025. (VP)