Unicredit Bank anticipates a slowdown of Romania’s economic growth to 4.4 percent in 2018 and 3.6 percent in 2019 as consumption and investment will be affected by the slowdown in wage growth, fiscal uncertainty and higher funding costs.
“The conflict between executive and legislative branches of government on the one hand and judiciary on the other side could intensify. The ruling coalition is trying to implement some changes to the justice laws that have attracted criticism. As long as President Klaus Iohannis opposes these changes, one of the few solutions of the ruling majority would be the suspension of the president,” the financial institution points out in its latest quarterly report.
Moreover, Unicredit warns that Romania risks a conflict with the European Union on issues related to the judiciary and fiscal affairs, and the risk of initiating a new excessive deficit procedure in 2019 remains high.
Bank analysts also show that the National Bank of Romania (BNR) will increase the interest rate policy to 3 percent by the end of next year and the depreciation pressures on the Romanian leu may increase in Q2 2018.
Private consumption could record the steepest tempering amid slowing salary increases, high inflation and rising interest rates, all three factors affecting newly-granted loans. Also, it is likely that three out of four types of investment to negatively influence gross added value: public investment and infrastructure works, European funds and productive investment. On the opposite side, private sector activity will continue to grow rapidly against strong demand for commercial, logistical and industrial buildings.
Unicredit also estimates an increase in inflation to around 5 percent in Q2 2018, followed by a fall to 3.5 percent in Q4 2018. In 2019, inflation could remain close to the upper limit of the target range of 1.5 – 3.5 percent