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December 3, 2022
BUSINESS

E&Y: Romania unlikely to get its budget deficit close to 3pc until 2015

After a steep gross domestic product (GDP) decline of 7 pc in 2009, Romania’s problems continued in 2010 when the economy contracted by a further 1.3 pc. Released yesterday, an Ernst & Young (E&Y) survey reveals that the outlook remains very uncertain. A rebound in growth to 4 pc is forecast for 2012 as investment and consumption gather pace, but there is still a risk on the downside. Coupled with the public policy uncertainties, the weak growth profile means that Romania is unlikely to get its budget deficit close to 3pc of GDP until 2015, the survey stressed.

Romania’s GDP is estimated at 0.9 pc this year, just 1 pc growth, a very weak result, driven by net exports, following it will reach 3.9 pc in 2012 and 5.4 pc in 2013. Romania has continued to benefit from a stronger external environment in early-2011; export values – in euro terms – grew 47.8 pc on the year in January, the highest rate of expansion since late-2000. “Meanwhile, the visible trade balance turned positive in January for the first time in more than ten years”, E&Y representatives noted. With import growth much slower because of subdued domestic demand, the contribution to growth from net exports is likely to be both positive and large this year – we estimate it between 2-2.5 pc points. This rise in exports is due to stronger industrial output, which rose for the sixth successive month in January.

The significant improvement in industrial performance has begun to spread to other sectors, a sign that the recovery is slowly broadening, with potential benefits for employment and consumption. Stronger exports helped offset – to a significant extent – the impact of the harsh austerity measures implemented by the government, with industrial production growing by more than 5 pc in 2010 despite the weakness of domestic demand. The mid-2010 fiscal measures taken to address mounting concerns about the budget deficit – including a 5 percentage point VAT hike – pushed the economy back into recession in Q3, before a small 0.1 pc GDP rise in Q4, driven by a further improvement in net exports, which contributed 1 pc point to quarterly GDP growth, and a 0.4 pc rise in investment. But private consumption continued to fall in Q4 and fell by 1.7 pc overall in 2010 after the 10.3 pc plunge in 2009, while investment fell by almost 15 pc after a drop of over 20 pc in 2009.

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