KeysFin: Romanian economy to slow down in 2017. Consumption – to be affected by taxation and inflation

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Romanian economy will continue to grow in 2017, yet at a slower pace against last year, given the slowdown in domestic consumption and the external risks, a KeysFin opinion poll on a representative sample of businessmen reveals. The barometer reveals moderate optimism for 2017, conditioned by the challenges in the fiscal-budgetary area and by the world economy development.

After 2016, when the 4.1% economic growth was driven by consumption, the development in 2017 is seen positively, but reserved.

Most businessmen are reluctant on the accelerated trend of economic growth, in spite of the fiscal easing measures such as cutting down VAT to 19% and eliminating several taxes, accompanied by the increase of minimum wage as of February 1, 2017, which should, theoretically, stimulate consumption.

53% of the interviewees estimate 4-4.1% GDP growth, some 28% expect 4.2-5% growth and 13 % expect less than 4% growth, saying currently there are too many unknowns regarding the economic development in 2017.

Asked about the main challenges in 2017, most managers (62%) expect a slowdown in consumption, 43% point to the world economy uncertainties, 37% to the possible tax measures and 24% point to the inflation increase. Other factors are the evolution of main currencies and financial blockage.

According to KeysFin analysts it is hard to believe the consumption will reach again the level registered last year, as inflation expectations are significant. “The minimum wage increase will put pressure on companies and we cannot exclude its direction might be the general increase in prices. Inflationist pressures will be stressed by possible import increases, given the limited domestic offer.” Analysts say the inflation rate in 2017 would reach 2-2.1%.

Most investors (76%) say the national currency will remain predictable in 2017. The exchange rate against EUR will range between RON 4.45 and RON 4.55, some 22% expect the national currency above RON 4.6.

Asked about what measures they would request from the government, the businessmen said:

  • To have a stable tax code, without weekly amendments;
  • Cutting red tape in administration;
  • Stimulating economy by durable investments, mainly in infrastructure.

“Although the GDP grew by EUR 8-9 billion per year, the state revenues remained constant at EUR 23 billion. Tax and wage pressures will affect the state budget, if no solutions for making budget expenditures more efficient are found. The government will have to choose between conducting reforms to honour its promises or to extend the funding sources. During the past five years, the authorities have borrowed from banks the equivalent of EUR 20 billion, the same amount as borrowed from the IMF and the WB to get over the crisis,” KeysFin analysts say. They add that investments are needed to open development opportunities.

In terms of external risks, the Brexit and the new Trump administration are most feared by investors, as well as European policies with extremist tones.

“The impact of elections in France, Germany and the Netherlands, along with the development of Italian economy, where the banking risks are growing, are the main challenges. Some businessmen mentioned the economic instability in China. The world’s main exporter could be hit by the protectionist measures promised by Donald Trump, which could also be envisaged by other countries as well,” KeysFin analysts say.

The KeysFin survey on Romanian economy was conducted during December 1-30, 2016 on a sample of 150 companies in various fields such as trade, financial services, agriculture, energy, garments producers, IT, etc.

 

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