EC: Romania’s GDP to grow by 5.7 pc in 2017; government deficit, projected to increase to 3.9 pc of GDP

European Commission (EC) has revised Romania’s growth and deficit forecasts upwards in 2017 and 2018, warning that the growth is set to decelerate but remain above potential. Thus, according to its Autumn Forecast released today, Romania’s GDP is forecast to grow by 5.7 percent in 2017, 4.4 percent in 2018, and 4.1 percent in 2019.

Private consumption is projected to decelerate in 2018, as inflation increasingly weighs on real disposable income, but is expected to continue acting as the main growth driver. Furthermore, investment is forecast to strengthen on the back of a pick-up in the implementation of projects financed by EU funds.

At the same time, the weakening of Romania’s trade balance is expected to lead to a gradual widening of the current account deficit, which is forecast to reach 3.1 percent of GDP by 2017, 3.2 percent in 2018 and 3.4 percent in 2019.

”The possible tightening of the central bank’s monetary policy in response to emerging inflation pressures and a widening output gap could dampen the outlook for both private investment and exports. Investment could also be adversely affected if the government were to further cut public investment in order to reach its budgetary deficit targets. The continuing increase in unit labour costs, due to wage growth outpacing productivity growth, could also curtail Romania’s exports. More generally, uncertainty regarding the government’s policies could also hamper growth,” EC report reads.

In 2017, the general government deficit is projected to remain at 3 percent of GDP and for 2018 is forecasted to increase to 3.9 percent of GDP.

”As a consequence of fiscal easing and an increasing output gap, Romania’s structural deficit is forecast to rise from around 2¼ percent in 2016 to around 3¼ percent in 2017 and around 4½ percent in 2019. Despite strong GDP growth, the debt-to-GDP ratio is thus projected to rise from 37.6 percent of GDP in 2016 to 40.5 percent in 2019.

According to EC’s Autumn 2017 Economic Forecast, the euro area economy is on track to grow at its fastest pace in a decade this year, with real GDP growth forecast at 2.2 percent. This is substantially higher than expected in spring (1.7 percent).

The EU economy as a whole is also set to beat expectations with robust growth of 2.3 percent this year (up from 1.9 percent in spring). EC expects growth to continue in both the euro area and in the EU at 2.1 percent in 2018 and at 1.9 percent in 2019