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January 18, 2022

EC revised from 1.6 to 1.4 pc growth forecast for Romania

For 2012, real GDP in Romania is projected to grow by 1.4 percent, with domestic demand expected to be the main growth factor, and for 2013, the growth is estimated to accelerate to 2.9 percent, according to European Commission Spring Forecast 2012-2013. Investment is expected to be an important driver in 2012 given the country’s need to modernise its public infrastructure, partly with the co-financing from EU funds. Due to the financial market uncertainty, some of the investments initially planned for early 2012 are likely to be delayed to the second half of 2012 or 2013. As in 2011, credit activity is set for a modest increase in 2012, as households and credit institutions continue to repair their balance sheets.Also, external demand is expected to continue to contribute negatively in 2012 due to the worsening economic outlook for the EU which accounts for about 70 percent of Romania’s exports, the same document reveals. The resulting increase in the trade deficit will lead the current-account deficit to widen to 5.0 percent. Downside risks include additional needs to repair household balance sheets, coupled with tighter credit standards for consumer lending that may result in lower-than-currently-forecast private consumption. Upside risks include a stronger contribution of investment from higher EU funds absorption and of domestic demand linked to possible pre-electoral fiscal slippages.Moving to another topic, labour market conditions are expected to improve over the forecast horizon with unemployment forecasted to decrease to 7.2 percent in 2012 and to 7.1 percent in 2013.

Inflation to remain within the BNR’s target range in 2012 and 2013

Upside risks to the inflation outlook remain, although price pressures receded significantly in 2011, EC document shows. Harmonized Index Of Consumer Prices (HICP) inflation fell sharply to 3.2 percent in December 2011, close to the mid-point of the National Central Bank’s (BNR’s) target range of 3.0 percent ± 1 pp. set for end-2011, amid a favorable VAT-related base effect and easing food prices. As the temporary downward pressure on headline price indices stemming from volatile commodity prices gradually reverses going forward, inflation is projected to increase but to remain within the BNR’s range for end-2012. Over the medium term, risks to the inflation outlook are tilted to the upside due to as-yet uncertain prospects of further increases in administered energy prices. Conversely, a slower-than-expected economic recovery would have disinflationary effects. Also, the deficit is expected to come down to 2.8 percent of GDP in 2012.

Gradual recovery in the EU, to start in the second half of the year and gather speed in 2013

Following the output contraction in late 2011, the EU economy is estimated to be currently in a mild recession, the same EC official document reports. Together with an expected acceleration in global growth, the recovery is forecast to set in slowly from the second half of the year on. The picture presented in the interim forecast in February is broadly confirmed for 2012, with real GDP projected to stagnate in the EU and to contract by -0.3 percent in the euro area. For 2013, growth is forecast at 1.3 percent in the EU and 1.0 percent in the euro area. Unemployment is expected to remain high at 10 percent in the EU and 11 percent in the euro area over the forecast period. Inflation is set to moderate gradually as the impact of higher oil prices and tax increases fades away. Fiscal consolidation is forecast to progress, with public deficits in 2013 declining to 3.3percent in the EU and just below 3 percent in the euro area. Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro said: “A recovery is in sight, but the economic situation remains fragile, with still large disparities across Member States. We are witnessing an ongoing adjustment of the fiscal and structural imbalances built up before and after the onset of the crisis, made worse by the still weak economic sentiment Without further determined action, however, low growth in the EU could remain.”

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