Real GDP is forecast to grow by 4.4 percent in 2017 and 3.7 percent in 2018, European Commission (EC)’s Winter 2017 Economic Forecast reveals on Monday.
The estimates were revised up from autumn forecast, when Community Executive estimated that the Romanian economy will register an advance by 3.9 percent in 2017 and of 3.6 percent in 2018.
“Real GDP growth is forecast to remain strong over the forecast horizon, supported by fiscal easing and wage increases. Unemployment decreased significantly in 2016 and is projected to remain stable at low levels. With a positive output gap and the impact of previous tax cuts fading, inflation is set to pick up. The general government deficit is projected to widen due to tax cuts and public spending increases,” EC notes.
Export growth is projected to gradually accelerate over the forecast horizon as external demand strengthens. However, with strong import growth driven by robust domestic demand, the current-account deficit is forecast to widen to 2.9 percent of GDP in 2017 and 3.1 percent of GDP in 2018.
“Risks to the macroeconomic outlook are broadly balanced,” EC added.
Robust domestic demand, boosted by the additional 16 percent increase of the minimum wage in February 2017 should result in a positive output gap and inflation picking up. Annual average inflation is therefore forecast to turn positive in 2017 (1.6 percent) and increase further to 2.9 percent in 2018.
“Risks to the inflation outlook are tilted to the upside by the combination of strong domestic demand with a positive output gap, growing wages and increasing international oil prices,” Brussels officials point out.
As regards the employment, this is forecast to grow in 2017-2018, driven by strong economic growth, while the unemployment rate is projected to continue declining. With the hikes in the minimum wage and public wages adopted in 2017, unit labour costs are expected to increase over the forecast horizon.
For this year, the general government headline deficit is projected to deteriorate further, to 3.6 percent of GDP. Moreover, the general government headline deficit is projected to further widen to 3.9 percent of GDP in 2018, due to the full-year effect of the significant increase in old-age pensions scheduled for July 2017.
“As a consequence of the fiscal easing, Romania’s structural deficit is forecast to increase from around ½ percent of GDP in 2015 to about 2½ percent in 2016 and around 4 percent in 2017 and 2018. Despite strong GDP growth, Romania’s debt-to-GDP ratio is thus projected to rise from 38 percent of GDP in 2015 to 42.3 percent in 2018 as a result of the loosening in the fiscal position,” EC concluded./IBNA