Investment will be the main contributor to growth, although it is projected to slow down in comparison to 2012. The current account deficit, expected to remain around 4 pc of GDP over the forecast horizon.
In 2013 GDP growth should recover modestly to 1.6 per cent in Romania, according to European Commission staff working document, “European Economic Forecast, Winter 2013.” Domestic demand would be the main driver of growth, while net exports would contribute negatively due to a slower growth in export markets and stronger imports., the report reveals. Among demand components, investment will be the main contributor to growth, although it is projected to slow down in comparison to 2012 due to weaker than expected economic activity in the rest of the EU. Private consumption growth is expected to accelerate, although it could be held back by continuing needs for repairing households’ balance sheets and by tight consumer lending standards. Also, in 2013, unlike in 2010-12, government consumption is expected to deliver a marginally positive contribution to growth as a result of the public sector wage increases granted last year. GDP growth is expected to accelerate to 2.5 per cent in 2014 with a similar composition as in 2013: domestic demand would continue to be the main driver, powered by investment, while net exports contribute negatively, albeit by less than in 2013. The current account deficit, expected to remain around 4 pc of GDP over the forecast horizont
Food and energy prices drive up inflation
Short term price pressures have increased significantly since the summer with HICP inflation peaking at 5.4 per cent in September due to rising food prices and pass through effects associated with the leu’s exchange rate depreciation. In line with the planned price deregulation of both energy retail and wholesale sectors, energy prices are expected to exert upward pressure on inflation over the forecast horizon. Food prices increases are forecast to remain important in the first half of 2013 in view of a negative base effect. Given the modest recovery of the economy, wage pressures are likely to remain subdued. Going forward, annual inflation is projected to average 4.6 per cent in 2013 and 3.3 per cent in 2014.Risks to the short term inflation outlook are broadly balanced. The upside risks relate to a further weakening of the leu’s exchange rate and higher unanticipated rises in commodity prices. Conversely, a slower than expected recovery in the economy would have disinflationary effects.
Labour market remains weak
Despite further cuts in public sector employment, overall employment somewhat recovered in 2012. “However, overall job creation was limited as the improvement in regular employment was counterbalanced by a negative job trend among the self employed. Due to the subdued economy, employment is expected to recover only little over the forecast horizon,” according to the document. However, as active labour market measures are set to remain small and not well targeted, unemployment is not expected to go down significantly over the forecast horizon. Youth unemployment, currently at around 23%, is expected to be somewhat reduced but is to remain high. In 2013, as in 2012, public sector wage increases are expected to outstrip private sector wage growth due to the restoration of public wages following the 25% wage cut occurred in 2010. While, going forward, average private sector wage increases of employees are expected to be anchored around 5%, unit labour costs are expected to go down by 2014 due to increases in productivity.