BNR Board estimates domestic economy to slow down in 2017


The National Bank of Romania (BNR) Board members showed recently that the new short-term forecast pinpointed a slight step-up in GDP quarterly growth in 2016 Q4, including when compared with the latest medium-term forecast, followed by a relative loss of momentum, implying – amid a faster-than-anticipated deceleration in economic growth during 2016 Q3 – a relative slowdown in the widening of the positive output gap and in the strengthening of the ensuing inflationary pressures over the short term.

Following BNR Board members meeting on January 6, they remarked that the recent performance of high-frequency indicators, the general government budget deficit included, hinted at notable contributions to fourth-quarter economic growth from both consumer demand and investment, according to a minutes of the monetary policy meeting.

However, the central bank board members are worried about the outlook for the economic growth in the next period.

“Board members also revealed prevailing upside risks to the short-term forecast, related to post-election developments, with implications on the longer-term inflation outlook. It was assessed that risks to the inflation outlook could be compounded over the medium term by the potential ongoing sluggishness of public investment and structural reforms, likely to affect the domestic economy’s growth potential and to determine – alongside the prevailing consumption stimuli – a larger opening of the positive output gap and current account deficit in the period ahead,” the document reads.

As regards fiscal policy, the central bank board members have yet big unknowns, but hopes that the budget deficit will be maintained at the limit of 3 percent of GDP.

“Moreover, the unanimous opinion was that fiscal and income policy prospects remained uncertain until the 2016 budget execution features were released and, more importantly, the 2017 budget construction that would outline the future stance of the two policies became available. In this context, some Board members reiterated the requirements under the Stability and Growth Pact and Romania’s commitments to comply with these requirements, as well as other domestic legal provisions, considered as genuine constraints to a more pronounced loosening of the fiscal policy,” the minutes also shows.

Also, BNR officials have decided on January 6 to keep unchanged the monetary policy rate at 1.75 percent per annum.

BNR Board members are: Mugur Isărescu, Chairman of the Board and Governor of the central bank; Florin Georgescu, Vice Chairman and First Deputy Governor; Liviu Voinea, Board member and Deputy Governor; Marin Dinu, Board member; Daniel Dăianu, Board member; Gheorghe Gherghina, Board member; Ágnes Nagy, Board member; Virgiliu-Jorj Stoenescu, Board member.

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