European Commission (EC) forecasts in its Winter 2018 Economic report that Romania’s GDP will decelerate to 4.5 percent in 2018 and 4.0 percent in 2019. The growth of private consumption is expected to be more tempered in 2018, as inflation weighs more heavily on real disposable incomes and wage growth slows down.
Nevertheless, private consumption is expected to continue acting as the main growth driver over the forecast horizon. Investment is forecast to strengthen on the back of a pick-up in the implementation of projects financed by EU funds.
However, EC notes that the labour market conditions have been improving in line with the economic expansion. In 2017, the unemployment rate dropped to its lowest level in more than 20 years. The tight labour market, together with a 16 percent minimum wage hike in February 2017 and public sector wage increases, led to faster wage growth.
“Overall, average net wages are estimated to have increased by around 13 percent in real terms in 2017. Real wages are expected to continue growing in 2018, albeit at a slower pace, due to further increases in public wages and an additional 9 percent hike in the net minimum wage taking effect in January,” the report reads.
Moreover, the headline inflation is projected to further pick up as demand pressures mount and the effect of the January 2017 tax cuts fades away. According to Brussels officials, the reversal of the January excise duties cut in October 2017 should further push up inflation this year. Thus, inflation is forecast to be 4.1 percent in 2018 and 3 percent in 2019.