Romania’s economic growth forecast, revised downwards
The new figures are included in the European Commissions spring economic forecast and are close to the IMF figures.
Ştefan Stoica, 08.05.2019, 13:41
The European Commission has revised downwards, to 3.3%, its economic growth forecast for Romania this year, as against the 3.8%, forecast in January. The new figures are included in the European Commissions spring economic forecast and are close to the IMF figures. In April, the IMF estimated a 3.1% growth for Romania for 2019. A little bit more optimistic are the figures estimated by the World Bank, which sees Romanian economy advance by 3.6% but still far from forecast of the National Commission for Prognosis , on which this years budget was built, and which estimates a 5.5% economic growth. Big differences are also present in terms of budget deficit, which the left-of-center government in Bucharest puts at 2.55% of the GDP, while the EU believes it will exceed the 3% allowed at EU level to go up to 3.5%.
According to the European Commissions report, real GDP growth eased in 2018, after a high peak in 2017. Growth was driven by private consumption, with investment and net exports both exerting a negative influence. According to the EC, current account worsened further. The soft landing is set to continue in 2019 and 2020 with the current account deficit projected to continue to widen. The labour market is expected to remain tight but inflation is set to ease from its 2018 high. The budget deficit is forecast to continue increasing, driven by expenditure on public wages and pensions. According to the European Commission, the current account deficit will widen to 4.7% of the GDP. Real GDP growth is forecast to ease to 3.3% in 2019 and 3.1% in 2020.
Private consumption is set to remain strong in 2019, as nominal wages continue to show strong growth. Investment is projected to recover in 2019 on the back of sustained improvements in equipment investment and a rebound in construction investment, helped by a pick-up in EU-funded projects. In 2019-2020 wage growth is projected to moderate over the forecast horizon as the economy cools down but should remain relatively strong due to the tight labour market conditions and the evolution of public wages. Both internal and external uncertainties could take a toll on economic growth, the European Commission has warned.
Externally, uncertainties surrounding global demand and the EU economy could have a negative impact on Romanias exports. Internally, a sustained increase in unit labour costs due to wage growth outpacing productivity growth could also curtail exports. The uncertainty and unpredictability of public policies may also have a negative effect on consumption and investment, hampering growth. Finally, high increases in inflation in the first quarter of 2019 might be pointing to higher price levels than originally expected throughout the year.
