The state budget – Romania’s main macroeconomic risk in 2018, OTP Asset Management analysis reads

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The state budget will be the main macroeconomic risk for Romania in 2018, although the public debt is still low, an analysis conducted by OTP Asses Management reads.

“Given the Government’s increasing need for funding and the pro-cyclical fiscal policy during a period of economic expansion, the risk is higher that austerity measures are implemented in the future, when significant domestic or external shocks surface. Moreover, the wrong policies which fuel consumption instead of investments, as well as the failure to improve the quality of infrastructure, education and health, will turn into an obstacle to the country’s growth potential,” the quoted analysts say.

They expect a slower growth pace for the economy in the coming years.

“The fiscal fuel seems to be over. This is mirrored in ever more Government decisions to increase the revenues,” the document reads.

Romania’s GDP grew by 8.8% as gross series and 8.6% as seasonally adjusted series in Q3 2017 against the similar period in 2016, whereas in 9 months the economic growth was of 7% as gross series and of 6.9% as seasonally adjusted series, the latest National Statistics Institute (INS) figures reveal.

As compared to Q2 2017, the GDP was, in real terms, by 2.6% higher in Q3 2017.

According to a INS release in December, the household expenditures have had the largest contribution to the economic growth in the first nine months, of 6.1% respectively, given that the final consumption increased by 9.7%.

The state budget in 2018 is built on 5.5% economic growth, an average exchange rate of RON 4.55/EUR and an average monthly wage of RON 2,614. The cash budget deficit is estimated at 2.97% of GDP, whereas the ESA deficit is 2.96% of GDP.

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