Investment spending will be Romania’s main growth driver, as the government will make sure to increase the absorption rate of European structural funds, says EY Romania Country Managing Partner Bogdan Ion.
“Private investments also went up against the backdrop of lower interest rates for corporate loans and of enhanced confidence in the business milieu. Consumption also sees a strong growth rate, driven by rising wages, the very low inflation rate and the significant cut in the VAT rate as of June 2015,” said the EY Romania official in comments on the December 2015 issue of the EY Eurozone Forecast (EEF).
“Romania’s macroeconomic prospects remain positive despite the change of government in November. Domestic demand further supplied growth in Q3, with the GDP advancing 1.4 percent (after hitting a flatline in Q2) and reaching an annual level of 3.6 percent. Although the company didn’t perform a separate analysis by components for Q3, EY expects the upward trend for consumption and investments to continue,” reads the release.
Maintaining real income growth, underpinned by low or even negative inflation and a progressive decline in unemployment will support consumption in 2016 too. Tax cuts and the raise of wages in the public sector will stimulate available incomes even further. Net exports will have a moderate impact on economic growth.
“Overall, we expect Romania’s GDP to grow 3.7 percent in 2015, a little more than our September forecast,” said the EY Romania representative.
With other VAT cuts due to follow in January 2016, consumption growth is expected to reach 5.3 percent in 2015 and 5.5 percent in 2016. As the Eurozone continues on the path of economic recovery, export growth will consolidate, but will be surpassed by the advance in imports. Provided that there is no slowing down in the economic recovery of the euro zone, Romania’s GDP is expected to grow by 3.9 percent in 2016, against the background of robust domestic demand and the narrowing of the trade deficit.
With an annual average wage rise of roughly 8 percent and with decreasing consumption prices, one can say the consumption trend is steadfastly positive, is the conclusion of EY Romania experts.