Romania’s economic growth of over 5% estimated for this year hides high fiscal imbalances, and the country could face a budget deficit of 3.7% next year, according to an Unicredit Bank report.

Romania could also face the gradual depreciation of the local currency leu, with an estimated exchange rate of RON 4.68 per EUR at the end of 2018. The annual inflation rate is also expected to go up from an estimated 2.2% at the end of this year to 3.1% at end-2018.

The central bank (BNR) may thus be forced to increase the monetary policy rate three times next year, from the current level of 1.75% to 2.5%, according to Unicredit Bank. These combined factors will also lead to a significant slowdown in the economic growth, from 5.3% this year to 3.6% next year.

The report is very critical with the Government’s decisions, arguing that it repeats many of the mistakes that led to the severe recession of 2009-2010. The fiscal policy poses the biggest risk to macroeconomic stability, according to bank analysts.

“Ad hoc measures, tax increases and cuts in public investment could keep the budget deficit below 3% of GDP this year, but not in 2018,” reads the report.

Wages increasing at a faster pace than productivity indicates that the leu could be depreciating in the coming years.

Romanian central bank keeps monetary policy rate unchanged

editor@romania-insider.com