The European Commission and the EBRD have upgraded their economic growth forecast for Romania.
According to estimates at this point, the European Commission has upgraded its economic growth forecast for Romania in 2015 to 3.5%, as opposed to the 2.8% it expected in May. The GDP is expected to grow by 4.1% in 2016, and by 3.6% in 2017, as a result of better consumption against tax cuts. Inflation is expected to stay at a negative 0.4% this year, and negative 0.3% next year, getting back to 2.3% in 2017. Government debt is expected to go down to 39.4% of the GDP this year, going up subsequently to 40.9% of the GDP in 2016, and to 42.8% of the GDP in 2017. The budget deficit will reach 1.2% of the GDP this year, with 2.8% next year, and 3.7% the following year, according to the European Commission estimates.
The European Commissioner for the Euro and Social Dialogue, Valdis Dombrovskis, said that economic forecasts suggest that Romania’s economy will improve, which would not have been possible without decisive action in reforming public finance. He also added that continuing structural reform was extremely important, in addition to ensuring the sustainability of public finance and short and medium term economic growth through responsible budget policy.
The European Bank for Reconstruction and Development (EBRD) also upgraded its forecast for Romania’s economic growth by 0.5% for this year, as well as for 2016. The bank said that Romania is expected to have an economic growth rate of 3.5% this year, and 3.7% in 2016. The EBRD said that they expect domestic demand to sustain economic growth, with domestic consumption sustained by rising earnings, which comes along with the drop in VAT from 24 to 9% for foodstuffs, alongside rising salaries, already applied or planned. Also, private investment will continue to be recovered with better investor confidence and smaller investment costs, while government investment is expected to grow in the second half of 2015 as a result of better absorption of European funds.
A recent report on financial stability issued by the National Bank of Romania shows that right now there are no severe systemic risks of financial imbalance, but that two kinds of high systemic risks are revealed. The first is related to uncertainty regarding the evolution of global markets, while the second is related to the possibility of returning to ineffective economic policies on the domestic market. The deputy head of the National Bank, Liviu Voinea, summarized the main points of the report:
“We have a robust financial stability, with no immediate threats. However, prudence is required in how domestic economic policies are mixed. The main risks come from the outside, and, in spite of a shock-resistant banking system, the process of disintermediation has continued. Lending in domestic currency for individuals has started to go up while staying at modest levels for companies. There is, however, potential for growth in the case of the latter. The main vulnerability of the companies’ sector is considered to be financial indiscipline. Public debt is sustainable at present. Keeping the budget deficit at low levels ensures the sustainability of debt in the medium and long run.”
According to a study conducted by Ernst&Young, Romanian business leaders are confident that their businesses will grow this year, just as the whole economy will. Over one third of business people expect their turnover to increase significantly, while half of them are optimistic about the country’s economic evolution. Head of the Romanian Business People’s Association, Cristian Parvan:
“Managers are optimistic and that’s a good thing. It’s a good thing in the sense that the processing industry has maintained its contribution to the economic growth. As for the trade sector, it is and will continue to be boosted by the VAT cut. In the case of constructions, their dependence on the weather makes it difficult to foresee an increase in the volume of activity. Services, in turn, are generally affected by the price and an increase in the level of revenues. It’s difficult to estimate how things will really stand because many parameters are still unknown. There is a certain guarantee, so to say, regarding the low price of oil to be maintained, which has a positive influence over the whole industrial output, because it keeps energy prices in check. What’s worrying, though, is the unclear economic and geopolitical background which leads to major turbulences in both the European and global trade.”
The IMF has revised its economic growth forecast for Romania, from 2.7% to 3.4% this year and from 2.9% to 3.9% for 2016.
(translated by E. Enache and C. Cotoiu)