Forecasts on Romanian Economy

forecasts on romanian economy The European Commission has recently revised upwards the forecast for Romania's economic growth rate in 2016.

The European Commission has recently revised upwards to 5.2% the forecast for Romania's economic growth rate in 2016. The economic advance will slow down, with the grow rate expected to drop to 3.9% in 2017 and 3.6% in 2018, according to the autumn economic forecast. Therefore, estimates have been revised upwards as compared to the spring forecasts, when the European Commission estimated that the Romanian economy would report a 4.2% growth rate in 2016 and of 3.7% in 2017. 

The real GDP growth rate is at the moment one of the highest across the European Union and it is estimated it would remain robust in the coming years, being supported by fiscal relaxation and pay rises. Inflation is expected to grow as the effects of the previous tax cuts disappear. The governmental deficit is expected to grow considerably, because of tax cuts and pay rises in the public sector, shows the European Commission report. According to fresh estimates, public deficit in 2016 is likely to grow up to 2.8% of the GDP, up from 0.8% of the GDP in 2015. It is expected to reach 3.2% of the GDP in 2017 and stay at that level in 2018 as well, on condition that policies do not change.

 This forecast does not take into account the new draft laws, which Parliament is currently analysing. They include a significant increase in pensions, a 5 % reduction of social security contributions and the elimination of around 100 taxes and duties. The aforementioned draft laws pose a major risk that will take fiscal estimates downwards, the European Commission has cautioned. 

With details on that, here is economic analyst Constantin Rudnitchi:

 "Forecasts are correct, we obviously cannot contradict them, we don't have the means to do that. We can only adapt to reality. We have already seen that, in Romania, economic growth figures for the third quarter show a downward trend, a drop below the 5% ceiling, so it remains to be seen if the level of economic growth will be 5.2% at the end of this year. For the time being, there are signs that the economic growth rate could be smaller than 5%. For the rest, there is no big news regarding Romania, the situation is well known but it would be useful to make a reminder of all these things for policy makers and the administration to be well aware of them. We are among the few European countries that have reported budget deficit growth. We know the reasons too well: fiscal relaxation, payment incentives. All that has led to growth in consumption and to the economic growth rate we have been speaking about".

Economic analyst Constantin Rudnitchi says consumption is not the only factor contributing to Romania's economic growth, but also, more recently, investments:

 "We also have some good news if we look at statistics, namely that investments have begun to play a bigger role in economic growth, which is a good thing in that it may create a fairer balance between investments and consumption in the area of economic growth. Beyond this, the most important warning sign is that next year and the following, we may exceed the state budget deficit of 3% of the GDP required by the Maastricht Treaty unless we are careful, and by this I mean the government. This is not a good sign considering everybody in Europe talks about budget consolidation and the reduction of budget deficit. In this sense, Romania has seen a reverse trend and this is not encouraging, because beyond our European commitments to comply with this ceiling, the signal sent to investors who understand the Romanian economy may deviate from a certain path. In the short run, it does not appear to be a problem because we have economic growth and consumption, but most people look at the medium and long run and in this case it is obvious that this can lead to a derailing of the Romanian economy and no one will be happy about this. We should be more conservative and maintain the macroeconomic balance in order to start reaping the rewards as far as investments and the citizens are concerned, in that citizens or employees, as well as pensioners, may also see the effects of this economic growth in their daily lives."

VF With respect to inflation, the European Commission expects it to reach minus 1% in 2016, compared with its previous spring forecast of minus 0.4%. On the other hand, the European Commission's inflation forecast for 2017 has been considerably revised up to 1.8% from minus 0.6% in its spring forecast. The Commission based its estimates on the accumulation of inflationist pressures as a result of the disappearance of the effects of the previous tax cuts, solid domestic demand and salary rises. As a consequence, the annual average inflation rate may reach 2.9% in Romania in 2018 compared with the previous spring forecast of 2.5%. Let us also note that the International Monetary Fund estimates a 5% economic growth rate for Romania this year, followed by a slowdown to 3.8% in 2017. The European Bank for Reconstruction and Development estimates a 4.8% economic growth rate for this year and 3.7% for 2017.
Publicat: 2016-11-29 13:29:00
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