Romania’s economy to grow at an average annual rate of 5.5 pc in 2019-2021, Gov’t estimates

The Romanian economy will grow more sustainably during 2019 – 2021 period, with an estimated average annual rate of 5.5 percent, while the domestic demand (consumption and investment) will continue to represent the main driver of the economic growth, according to the Convergence Programme 2018-2021, made public by the Ministry of Public Finances (MFP) recently.

“Private consumption expenditures will increase on average by 5.8 percent annually, given the improvements in the labor market. Gross fixed capital formation will grow at an accelerated rate of growth (8.2 percent annually) following the improvement of the investment environment through the measures envisaged, as well as the financing conditions both from budget sources and from structural and investment funds,” the document reads.

An economic growth of 6.1 percent is estimated for 2018, based solely on the domestic demand. At the same time, it is forecasted that the gross investment (gross fixed capital formation) will increase by 7.9 percent.

MFP shows that the medium-term economic growth will create the conditions for improving employment, especially as regards the number of employees. Thus, it is estimated that the occupied population will gradually increase until 2021, the structure changing in favor of employees whose share is estimated to be almost 79 percent in 2021 compared to 75 percent in 2017. Thus, the unemployment rate, according to AMIGO report, will gradually decrease from 4.9 percent in 2017 to 4.4 percent in 2021.

The average annual inflation rate is estimated at 4.3 percent for 2018. For 2018-2021, the estimated inflation rate, both as an annual average and at the end of the year, will record a downward trend, in the absence of other shocks, reaching 20 percent (annual average) in 2021.

The report also shows that exports will remain a component of demand in 2018 that will support Romania’s economic growth, an increase in goods exports of 8.7 percent, and an increase of 9.4 percent for imports of goods.

Overall, the forecast for 2018 shows that the trade deficit will have a share of GDP of 7.3 percent.

For the 2018-2021 period, average annual increases in exports of goods are projected to reach 8.6 percent and 9.1 percent to imports. The share of the FOB-CIF trade deficit in GDP will reach 8 percent in 2021.

As regards the current account deficit of the external balance of payments, it is expected to EUR 6.3 billion, representing 3.1 percent of GDP, while foreign direct investment (FDI) will cover over 77 percent of the current account deficit. On the medium term, the current account deficit will remain at a value of EUR 6.3 billion – EUR 6 billion, with a share of GDP of 3.1 percent in 2018 and 2.4 percent in 2021.

In the previous edition of the Convergence Programme, it was estimated that GDP will increase by 5.2 percent in 2017. The financial results obtained by the economic sectors – industry, agriculture and services – led to a GDP growth of 6.9 percent.

“For 2018 and the following years, the forecast has taken into account the positive impact of the measures envisaged in the Governance Programme on the business environment and on the purchasing power of the population,” the document also reads.

Not least, MFP notes in the Convergence Programme 2018-2021 that Brexit will not be a significant impediment to Romania’s international trade activity and the Pension Pillar II will have an increasing share in total pension expenditure in 2030, reaching a share of GDP of 1 percent in 2070.