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December 7, 2021

EC’s spring forecasts: Romania’s economy, most dynamic in CEE in 2016 and 2017

+ The European Commission is maintaining its estimates according to which the Romanian economy will register a growth of 4.2 percent in 2016


In an ample report on the state of the European Union and of member states, European Commissioner Pierre Moscovici identified numerous elements that will spur the economy of member states this year and the next, as well as numerous challenges that the EU as a whole as well as each member state will have to face during this period.

Mosocovici has also offered GDP growth forecasts for this year and for 2017.

It is worth pointing out that, according to Moscovici’s analysis, Romania’s GDP will register the most important growth in Central and Eastern Europe (CEE). Both in 2016 and in 2017.

Here is the evolution forecast by the EC for the main states in the region (GDP growth in 2015 and forecasts for 2016 and 2017, in percentages): Bulgaria – 3.0, 2.0, 2.4; Czech Republic: 4.2, 2.1, 2.6; Hungary – 2.9, 2.5, 2.8; Poland – 3.6, 3.7, 3.6; Romania – 3.8, 4.2, 3.7; Slovakia: 3.6, 3.2, 3.3.

The European Commission estimates that Romania’s economy will registered a growth of 4.2 percent in 2016, backed by robust domestic demand, and its growth rhythm is expected to slow down to 3.7 percent in 2017, according to the spring forecasts published by the European Commission on Tuesday. The figures are identical to the ones included in the winter economic forecasts published by the EC in early February.

The EC also repeated its warning on the risks to the macroeconomic outlook, ‘due to the uncertainty caused by the adoption of a debt discharge law by Parliament on 13 April. This law could have a substantial negative impact on investor confidence and credit outlook.’
Inflation is expected to stay negative until mid-2016, when the base effect of the food VAT cut from June 2015 will wear out. The surge in domestic demand combined with accelerating wage growth and the increase of the minimum wage from May 2016 is likely to add to the upward pressures on prices, but the impact of the VAT cut is expected to curb inflation to -0.6pct on annual average. The annual average inflation rate is forecast to increase to 2.5pct in 2017 despite the additional 1 percentage point cut of the standard VAT rate envisaged for January 2017.
The general government deficit is projected to substantially increase in 2016 and 2017 on the back of tax cuts and expenditure increases. In 2015, the general government deficit improved to 0.7pct of GDP, from 0.9pct of GDP in 2014, but it is expected to increase to 2.8pct of the GDP in 2016 and to further deteriorate to 3.4pct of the GDP in 2017. ‘An additional cut in the standard VAT rate by one percentage point, the abolition of the extra excise duty on fuel and of the special construction tax are expected to have a negative impact on revenues,’ the document reads.

The EC has reviewed slightly downwards its forecast for the whole EU, with 1.8pct growth in 2016 and 1.9pct in 2017, from 1.9pct and 2.0pct respectively in the winter forecast. Growth will accelerate or remain steady in most member states, with figures still uneven among them.

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