WB report: The risk of a recession due to coronavirus in 2020 is substantial in Romania

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The negative impact of the COVID-19 pandemic on the economy is anticipated to be substantial in Romania, at least in the first half of 2020, warns the latest World Bank report on the coronavirus pandemic’s impact on the national economies.

The WK argued this comes as a a natural effect of the restriction and lockdonw measures. “The authorities acted promptly by declaring a state of emergency in mid-March. Measures restricted internal and external mobility to limit the spread of the virus, including closing schools, suspending events and limiting activity of public institutions. 

As a result, economic growth is projected to slow significantly to 0.3 percent in 2020, from an estimated 3.8 percent before the crisis. The projection is done under the assumption that growth would gradually bounce back in the second half of 2020 and further accelerate in 2021 to 4.4 percent.

However, the risk of a recession in 2020 is substantial and growing as COVID-19 brings to a halt large segments of the European economy and disruptions to global supply chains and trade patterns“, the report further says.

The report argues that “growth will need to be substantially aided by coordinated fiscal stimulus at the national and EU levels”.

Support is expected to focus on targeted fiscal spending to contain the disease, deferred tax payments, liquidity support for companies, SMEs and firms in severely affected sectors, such as transport and tourism, and support for affected and self-employed workers.”

In the short-run, the WB officials point out that “a protracted slowdown of the European economy, and in particular of Germany and Italy, the main trading partners of Romania, would put additional pressure on the domestic economy”.

On the other hand, a swift and targeted fiscal stimulus, coordinated at national and EU levels, would limit the effects of the crisis and fuel the recovery. The EU-wide economic and labor market impacts of COVID-19 will affect the 18 percent of Romanian citizens aged 20-64 living in the EU and their families in Romania. The partial decoupling of real wages and productivity could also contribute to weakening exports, putting supplementary upward pressures on the current account deficit.

“In the medium term, the focus of fiscal policy should gradually be rebalanced towards mobilizing investment, primarily from EU funds to support a sustainable EU convergence path and social inclusion. Reforms should aim to improve the effectiveness of public administration, the accountability and efficiency of SOEs, and regulatory predictability, as well as to increase human capital in order to increase the economy’s growth potential and help address persistent large social and spatial divides.”

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