According to EC forecasts issued last fall, in 2016 Romania's economy is supposed to grow by 4.1%.
According to European Commission forecasts issued last fall, in 2016 Romania's economy is supposed to grow by 4.1%, as opposed to the 3.5% growth rate in 2015. The inflation rate is supposed to stay in the negative, minus 0.3%, with a budget deficit worth 2.8% of the GDP. When the Commission issued its figures for Romania, Valdis Dombrovskis, Commissioner for the Euro and Social Dialogue, said that the figures indicated improved economic performances for Romania, which he said would not have been possible without decisive action in reforming public finance. However, he added, ongoing structural reform is extremely important, as well as ensuring the sustainability of public finance, and economic growth on short and medium term through responsible budget policies.
Romania's budget for this year was built on a 4.1% economic growth and 2.95% budget deficit of the GDP, which nominally stands aty 746.6 billion lei, about 166 billion Euro. In turn, the EBRD estimates the economic growth at 3.7% this year. According to its report, domestic demand is expected to further foster economic growth, with domestic consumption stimulated by higher incomes across the population, resulting from lowering the VAT for foodstuffs from 24 to 9%, as well as by the already implemented wage rises. Private investment will continue to be profitable with rising investors' confidence and lower funding costs, while government investment is expected to go up with better European fund absorption, according to the EBRD report.
Here is economic analyst Aurelian Dochia: "Romania is on a growing trend, and right now it is one of the best performing EU economies, we can only be glad for that. However, we have to take into account a few nuances, which the European Commission underlined in its fall forecast. This growth is largely due to the high consumption by the population, resulting from pay rises and other incomes granted lately, or soon to be granted. However, at some point this growth that doesn't have backing in budget income will lead to a rise in the budget deficit. Already with the latest measure passed by Parliament, bringing public sector salaries up by 10%, Romania may exceed the 3% GDP deficit ceiling, and in 2017 I expect this deficit to go up, taking us into the danger zone."
The chairman of the Bucharest Stock Exchange board, Lucian Anghel, believes that a growth based largely on consumption is not desirable, because the positive effects would be short lived:
"This economic growth may become risky, and may turn into macroeconomic imbalance after a while. Economic growth exclusively based on consumption is not sustainable on long term. Why? Because of trade deficits, which indicate that we consume mostly what others produce. If that consumption were based exclusively on products made in Romania, then the economic growth would have been higher and more sound. We can live better based on consumption for a while, but at some point we are going to get the bill entailed by those trade deficits, which will gradually worsen."
The World Bank also expects Romania to have growth over the next few years. World Bank chief economist for Romania, Catalin Pauna, told us about their forecasts for 2016 and onwards:
"We expect the growth rate to go up to 3.9% in 2016 and to 4.1% in 2017. We all know what the engines of economic growth are: private consumption, but also private investment. We saw significant growth in the first three quarters of the year, and we can even see a thaw in non-government loaning, on the individual side for now, but also for companies. The figures over the last two months are looking pretty good."
As for inflation, the World Bank forecasts that it will stay in the negative until June, then will go over 2.5% in 2017.
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