Garanti Bank, the local subsidiary of Turkish Garanti Group, revised upwards its estimations for Romania’s GDP in 2017 to 4 percent in 2017, from 3.7 percent estimated last year.
The rise will most probably be favored by continued support from trade and better expectations in industry, according to the bank’s Quarterly Macroeconomic Report, corresponding to the first quarter of this year.
Riskwise, according to Garanti Bank’s specialists, 2017 will be a balanced year. On one hand, the uncertainty related to banking legislation has decreased after The Constitutional Court decided that the law of debt discharge was partially non-constitutional and the Swiss francs conversion law was unconstitutional. On the other hand, the budget deficit could exceed the 3 percent target this year, due to fiscal relaxation measures, including public wages’ hikes.
“2017 is about maintaining macroeconomic stability and most importantly, about encouraging investments, in order to improve the sustainability of the economic advance and drive productivity growth. Romania has solid macroeconomic fundaments and stable investment grade ratings, and we expect this year’s economic advance to be stronger than in 2016”, Ufuk Tandoğan, CEO of Garanti Bank Romania stated.
The annual inflation entered a positive territory in 2017, driven by food prices. Garanti Bank expects the inflation rate to reach 2 percent this year as administrative prices should increase by year end. As a result, the National Bank of Romania will most likely not increase the key interest rate in 2017, according to the forementioned report. At the same time, the FX mandatory reserves ratio could be lowered.
In 2016, Romania posted one of the highest GDP growth rates in the European Union, fuelled by the fiscal relaxation measures that boosted households’ real incomes and inflated trade and transport by 11 percent, compared to the previous year. GDP growth was also driven by the services sector, which increased by 6 percent in 2016, especially by the IT sector that jumped 14 percent last year, as compared to 2015.
However, investments dropped by 3 percent in 2016, compared to an average increase of 6 percent in 2014-2015, and a mild revigoration is being expected in 2017.
Regarding other sectors, residential constructions have registered a significant boost. The number of apartment deliveries was the largest since before 2009 (52,000 in 2016, versus 63,000 in 2009). The commercial and office buildings segment has had a positive evolution as well, helped by the consumption increase and optimistic economic outlook.
Last year, banks had a favorable context in terms of lending, after significantly cleaning their balance sheets and reducing the NPL ratio by half. As such, in the first two months of the year, new loans (predominantly in RON – 79 percent of total new loans) increased by 14 percent (especially driven by the Corporate segment), compared to 4.1 percent in the same period last year.