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September 30, 2022
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BNR: Forecasts for 2023 regarding economic activity, considerably revised downwards

The forecasts regarding the economic activity are considerably revised upwards for 2022, but exclusively as a result of its growth far beyond expectations in the first quarter, and for 2023 they are significantly revised downwards, according to the minutes of the monetary policy meeting of the Board of Directors of the National Bank of Romania (BNR) from August 5, 2022.

“Regarding the future of the cyclical position of the economy, the members of the Council noticed that the forecasts regarding economic activity are considerably revised upwards for 2022, but exclusively as a result of its growth far exceeding expectations in the first quarter, and for 2023 they are revised significantly downwards, in the context of a stronger adverse impact presumed to be exerted by the war in Ukraine and the imposed sanctions, only partially counterbalanced by the effects of the absorption of European funds related to the Next Generation EU instrument. The evolution implies an inflection in the GDP gap pattern, which, after it reamplified its positive value beyond expectations in the first quarter of 2022, is expected to narrow relatively quickly and gradually descend into the negative territory starting from the third quarter of 2023,” according to the document published on Friday.

According to the BNR, it was noticed that the main determinant of the GDP advance will probably remain private consumption, under the conditions of a significant acceleration of its growth in 2022 – attributable almost entirely to the unexpectedly strong dynamics during the first quarter, followed by a pronounced decrease in dynamics in 2023, including under the influence of the gradual increase in interest rates on loans and deposits of the population.

From the part of net export, there is probably a notable negative contribution to GDP dynamics in the current year as well – against the background of the pronounced slowdown of economic growth in the EU and the consistent increase in the prices of raw materials, as well as a neutral impact in 2023, given a tempering of the advance in imports, in correlation with the evolution of internal absorption. Therefore, the current account deficit is expected to continue its rise as a share of GDP in 2022, including under the influence of the additional deterioration of the evolution of import prices in relation to that of export prices, and in the following year to decrease only slightly.

Furthermore, the absorption of European funds, mainly those related to the Next Generation EU program, is conditioned by completing targets and strict milestones in implementing approved projects, the Board members highlighted several times, but is essential for achieving required structural reforms, including that of energy transition, as well as counterbalancing, at least partially, the contractionary impact of shocks on the supply side, amplified by the war in Ukraine.

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