Capital Economics: After ‘turbo’ increases, Romania’s economy will slow down more than estimated

The growth rate of the Romanian economy could fall to 3.5% this year and down to 2% in 2019, according to the analysts of Capital Economics.

“Romania’s economy has recorded the fastest growth in the region (Central and Eastern Europe – CEE), but it is likely to slow down further than the expectations for 2018,” the Capital Economics’ latest report reads.

Despite the good evolution of the Eurozone growth engine, across the CEE region, “the economic cycle has matured and growth is likely to slow down gradually. Inflation will continue to grow and, despite the stimulus policy of the European Central Bank, the central banks in Eastern Europe will increase the interest rates. Turkey and Romania will suffer the most severe slowdowns after the ‘previous turbo’ increases, the report reads.

For the region as a whole, growth is likely to slow down to 3% this year and to 2.3% in 2019, down from 3.8% in 2017. Except for Russia, the Capital Economics economic growth forecasts for 2018-2019 are now below the general consensus.

Although “the exports growth should be helped by a strong Eurozone demand, but the political support that propelled domestic consumption over the past two years will be withdrawn,” the report reads.

Moreover, the Capital Economics analysts believe that “the budget deficit probably violated the Maastricht threshold of 3% of GDP last year, and the Government will probably tighten the fiscal policy this year to keep the deficit below this level.”