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October 19, 2021

Coface: Romanian economy to contract by 1.5-2 pc

Coface company estimates the Romanian economy will suffer a contraction of 1.5-2 pc this year, following the austerity measures passed by the government, Mediafax reports. The company thus revised downward a forecast dating back from early 2010, which saw the GDP growing by more than 0.5 pc. According to analysts, though the government’s measures aim at curbing the budget deficit, they might put at risk the goal of meeting the deficit target and could hamper economic activity, by the lack of a support package and the likeliness of effects upon an already dwindling consumption.

Coface warns that the VAT increase will translate into higher inflation, because tax hikes will impact upon the prices charged by providers and suppliers, who will not be able to dampen such a decrease of commercial margins. Another effect is to delay the relaxation of the crediting process, as repaying old credits will be more difficult in the new conditions. Hence, lending will remain restrictive in terms of both costs and guarantees, as the amount of cash in the market will stay low. On the other hand, companies will see their sales figures go down and will be unable to sustain “prolonged shocks” and adapt to the new conditions, with the effect of more frequent payment incidents, followed by insolvencies.

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