​The Forecasting Commission: Economic growth at 2.8% this year, 7.4% inflation estimate

The National Strategy and Forecast Commission has revised downwards to 7.4%, from 8%, the inflation estimate for the end of this year, against the background of a wider than expected reduction in the international quotations for oil and energy goods.

“The wider reduction of international quotations for oil as well as for energy goods than previously anticipated imposed a downward correction, visible in particular for inflation from the end of 2023. Thus, the estimate of the increase in consumer prices in December 2023 compared to December 2022 reduced by 0.6 percentage points, from 8.0% to 7.4% (the change in the annual average is insignificant, by 0.1 percentage points). In perspective, the forecasts are maintained, with the exception of 2024 where the statistical influences from the resulting corrections for the current year”, says the Medium-term Forecast 2023-2026, spring version.

The current account deficit was estimated to be corrected in the current year by 0.4 percentage points, mainly as a result of the reduction of the deficit in the commercial balance of goods, as well as the increase of the surplus for the balance of services. The spring scenario keeps unchanged the estimates from the autumn 2022 and winter 2023 versions on the evolution of the gross domestic product, making downward adjustments in terms of inflation for the current year and at the level of the following year.

According to CNSP, the economic advance foreseen for 2023, of 2.8%, is considered to be a prudent one, against the background of still high inflation, but with favorable premises determined by a good behavior of services, which could subsequently lead to the improvement estimates. Overall, constructions and services will perform in the current year, having upwardly revised increases compared to the previous forecast (+0.8 and +0.4 percentage points respectively), but their positive contribution will be diminished by industry, affected by dysfunctions in the chains supply and a moderate external demand.

“It should be noted the dynamism of construction works for which an increase in GAV (gross added value, n.r.) is estimated by 7%, supported in particular by the component of engineering constructions stimulated by the absorption of European funds. For agriculture, it is forecast, in favorable climatic conditions for this sector , an increase of 10.6%, after the production decreased considerably in the previous year, due to the pedological drought“, the document says.

On the other hand, industrial activity will be reduced under the impact of still high electricity and gas prices, with energy-intensive sectors recording activity contractions this year as well. In this context, there was a negative revision of the previous forecast of 0.8 percentage points, respectively from an increase of 0.6% to a reduction of 0.2% in the current scenario.

On the demand side, private consumption will follow a moderate dynamic (+2.7%), in line with previous estimates, given that the inflationary effect will be more intense in the first half of the year. For the gross formation of fixed capital, taking into account the dynamism of construction works, the growth rate was increased to 6.8% (+0.6 percentage points compared to the winter 2023 forecast).

Thus, the investment rate will reach 25.5% of GDP, ensuring the prerequisites for the transition to a new evolutionary model based on investments, comments CNSP. In the medium term, the annual rate of growth of the gross domestic product is estimated at 4.8% in the interval 2024-2026, with a peak in 2025 of 5%.

On the supply side, the industrial sector is expected to enter a recovery process, once the shocks have subsided, with an average annual increase of 4.4% expected.

“The most effective attraction and use of European funds from the PNRR and the Multiannual Financial Framework will make construction the most dynamic sector, with an average annual increase of 9.2% and one of the main supporters of the development of the economy. An increase is expected for services annual average of 4.6%, and those areas with high added value will play an essential role in their evolution“, the forecast published by the specialized institution states.

As for the demand side, the gross formation of fixed capital (+8.4%) will represent the main factor of boosting economic activity, considering the acceleration of public and private investments in priority areas, with financing from the PNRR. The result will materialize in a significant improvement of the investment rate (over 25% in GDP). At the same time, private consumption is expected to evolve at an average rate (+4.7%) lower than that of the gross domestic product. Net export will maintain its negative contribution over the entire forecast period, recording a gradual decreasing trend, up to 0.5 percentage points in 2026.

According to the CNSP, risks have become more balanced in recent months, but uncertainties induced by the tense geopolitical situation make the medium-term outlook vulnerable, as the global economy adjusts after the shocks of 2020-2022 and the recent turmoil in the financial sector. Recession concerns still prevail, and inflation may turn out to be more persistent than expected, prompting continued monetary policy tightening.

“An escalation of the war in Ukraine could trigger the renewal of the energy crisis in Europe, although the risk of energy supply is low. A possible segmentation of the financial, commercial and commodity markets in the regional blocs could lead to a new wave of production interruptions and at higher prices for globally traded goods, with global spillover effects through supply chains,” the Spring Forecast points out.