The European Bank for Reconstruction and Development (EBRD) has downgraded its estimates of Romania’s economic developments in 2020 as a result of the crisis caused by the coronavirus pandemic, according to the bank’s latest Regional Economic Prospects published on Wednesday.
According to the latest EBRD forecasts, the Romanian economy would decline 4% this year instead of advancing 3.2%, as forecasted by the bank in November 2019. In 2021, the EBRD expects a 4% expansion of Romania’s GDP.
According to EBRD, the Romanian economy continued growing at a robust rate in 2019, at 4.1%, driven by a strong expansion of private consumption on the back of pro-cyclical fiscal policy, including public salary and pension hikes. As a result, the fiscal deficit increased, reaching 4.6 per cent of GDP in 2019, but general government debt remained moderate, at 35% of GDP as of end-2019.
In 2020, EBRD forecasts a contraction of 4.0%, assuming the epidemic significantly slowing down from the second quarter, with all containment measures removed. The domestic lockdown (a state of emergency was introduced in mid-March) is reducing private consumption of services involving face-to-face contact and durable goods, which together account for around 30 per cent of total spending (for instance, new passenger car registrations fell by 32% year-on-year in March). This impact may be somewhat compensated by an increase in food spending, which accounts for 25% of total spending, the largest share in the EU.