Economic forecasts for Romania
Standard & Poor’s foresees a stable outlook for the Romanian economy
Bogdan Matei, 15.10.2024, 14:00
The International Rating Agency Standard & Poor’s has reconfirmed the good rating of the government debt and a stable outlook for Romania. The decision, according to the agency’s experts, was based on the country’s good economic development, as well as on a probable important growth in the next three years. The arguments include the moderate level of external debt. The good situation on the labor market is also highlighted, where unemployment remains close to historical lows.
According to the source, the Romanian economy will register a growth of 1.6% in 2024 and the pace is expected to double in the period 2025-2027, given that the country will benefit from important European funds, both from the multiannual financial framework and from the Recovery and Resilience Mechanism. However, there are also warnings from the financial evaluation agency. Romania’s rating could be downgraded if the deficit continues to exceed forecasts and if other imbalances persist, such as high inflation or the current account deficit, i.e. the difference between high imports and low exports. Standard & Poor’s also warns that the current pre-election spending will push Romania’s deficit to 7.3% this year.
The agency estimates that, overall, expenses will increase after the 20% salary increases in the public sector, accounting for 14 billion lei (the equivalent of approximately three billion euros), and after the increase in pensions starting as of September, equal to 0.6% of the Gross Domestic Product. Standard & Poor’s also notes the increase in military spending to almost 2.5% of the GDP this year, as well as high public investments, standing at about 7 percent of the GDP, only partially covered by European funds.
Standard & Poor’s is one of the three biggest international financial rating agencies. The other two are Fitch and Moody’s. All make independent assessments of the ability of the world’s states to pay their debts. According to the guide published by the financial site Global Investopedia, establishing a country’s rating takes into account the evolution of the economy, the volume of public and private foreign investments, the transparency of the capital market, foreign exchange reserves and the degree of political stability.
In a first reaction to the Standard & Poor’s announcement, the voices of the ruling PSD-PNL coalition in Bucharest were heard as saying that the agency’s decision, after the similar one in the summer, announced by Fitch, is proof of Romania’s macroeconomic stability and its development prospects. Less euphoric, opposition leaders and independent experts see the glass half empty. An expert in domestic economic analysis, Professor Mircea Coșea told Radio Romania that the agency’s diagnosis is a very objective one. We must admit that Romania is doing well, he said, adding, however, that this fact implies an extraordinary obligation for the current political leadership and for the one that will come after the presidential and parliamentary elections to be held late this year. (MI)
