The twin deficit problem persists
According to OTP Bank analysts, the economic recovery is slowing down and the GDP growth is visibly affected by high inflation, stagnating real wages, slowing global growth and the effects of the Russia – Ukraine conflict. However, it seems that the strong Q1 results will be enough to reach an annual GDP estimated growth of 4%, even if the performance in the later quarters will weaken.
Considering the economic recovery performance, the first semester results have been a great surprise, as the market has expected a correction in GDP growth in the first three months, compared to the stagnation in the second part of 2021.
Going further into sectorial analysis, the market service and trade sectors are the ones responsible for the surprise, with a great strengthening of activities in the first sector, which could be related to increased service consumption, once the pandemic has practically passed.
“In regional context, the comparison suggests a more optimistic, average growth performance for Romania. Although, for next year the prediction is more pessimistic, with a lower expected result. All areas are affected for now, considering inflation, trade, real income, interest rates, or fiscal consolidation, which at the moment has stopped. It will pick up later on, just as the increasing interest rate environment will start to bind, and economic growth could be below 3% in 2023. On the positive side Romania is expected to receive funds from the EU ~3.5% of GDP annually on the forecast horizon”, said OTP Bank analysts.
So far, inflation continued on its sharp upward path, reaching 13.8% by April and 14.5% in May. The April data was a huge upside surprise compared to the consensus of 11-11.5%, and this was mostly due to the 26% MoM increase in household energy prices, which was caused by the narrower new energy prices cap. As it follows, May inflation was broadly in line with the consensus, MoM dynamics have weakened slightly, suggesting that inflation could soon reach its peak.
“In our baseline inflation could peak in June slightly below 15%, but the decline will be slow afterwards, and we should prepare ourselves not to expect single digit rates until next