BNR Governor meets EU ambassadors. Tax cuts, salary increases might lead to higher structural deficit, Isarescu says

Central Bank Governor Mugur Isarescu met the EU ambassadors on Monday and spoke about the evolution of the local economy, informs hotnews.ro. Here are the main messages sent by the BNR governor:
– 2015 is the fifth consecutive year of growth. After an increase of 2.4% in 2014, we expect in 2015 an economic growth of 3.5%, well above the EU average. The current account deficit is expected to remain below 1.0% of GDP in 2015, and international reserves remain at a comfortable level, despite the almost full repayment of the IMF loan.
– A significant deviation from the MTO (medium term objective) seems likely in the coming years due to future tax cuts and wage increases in the public sector.
– Despite the rapid growth of the debt ratio to the GDP during the years of crisis, this indicator remains below 40% of GDP (fourth lowest in the EU). The banking system is resistant to shocks. We have witnessed the dramatic decrease of bad loans amid following the cleansing of the banks’ balance sheets, while the exposure to the Greek banking system is limited.
– The economic recovery after 2010 was initially led by exports. Since 2014, domestic consumption has replaced the net exports.
– Rapid growth rates of electrical equipment and of the automotive sector contributed most strongly to the favourable performance of the industry. Lately, the IT & C sector has gained a more powerful consistency, as their share in GDP surpassed the one of the agricultural sector in 2014 and is now close to the share of the construction sector.
– The medium term objective was reached in 2014. For 2015 estimate to stay close to the targets set, but a significant deflection seems likely in the coming years due to future tax cuts and due to the wage increases in the public sector.
– Economic risks arising as a result of the conflict between Russia and Ukraine were controlled. In the energy sector, the share of imports from Russia is limited (about 4%). Romania is able to cover from domestic sources about 92% of the consumption of natural gas. The share of imported natural gas fell further to 1.8% in January-May 2015 and is expected to become negligible in 2016.
– Romania ranks third in the EU in terms of energy independence (after Estonia and Denmark), the Russian capital being present in Romania (directly or through companies based in other EU countries) in the iron and steel sector (TMK), metallurgy (Alro Slatina) and petroleum refining (Lukoil). None of the companies with Russian capital can be considered systemically important. In the financial sector there is no direct connection between the Romanian banking system and the ones in Russia and Ukraine.