Expectations of Romanian analysts plunge massively in June on rising inflation

The Macroeconomic Confidence Indicator compiled by the CFA Romania Association upon a monthly survey among its members fell for the sixth month in a row in June, to 32.9 points (-3.5 points from May) - a value similar to those seen during the first stages of the COVID-19 pandemic (Q2-Q3, 2020).

On the 0-100 scale, an index of 50 means balanced "macroeconomic confidence" - a combination of the current situation and expectations.

As opposed to mid-2020, however, the current situation (45.4 points - close to 50 points that indicate "balanced" conditions) is significantly better than the expectations that have deteriorated massively (to 26.7 points).

This overall index was dragged down in June by the decrease of 5 points in the expectations component, which registered a decrease for the eighth consecutive month.

The main concerns are the evolution of inflation and its effects. The expected inflation rate for the 12-month horizon continued to rise, reaching an average value of 11%.

On average, the polled analysts see the exchange rate at 5.11 RON to EUR within 12 months.

The public finances are expected to deteriorate, with the public debt to GDP ratio seen at 57% (from under 50% at end-April) - a figure that doesn't quite match with the expectations for a 6.9%-of-GDP public deficit this year as long as the high inflation helps the government dilute the indebtedness ratio.

As regards the economic growth, the CFA analysts polled expressed projections with an average value of 3.6% - marginally above the 3.5% official target.

"Against the background of risk aversion triggered by Russia's invasion of Ukraine, as well as high inflation, the macroeconomic confidence indicator of the CFA Romania Association continued its decline for the sixth consecutive month, reaching values similar to those at the beginning of the corona pandemic. Inflation expectations continued to rise, with participants expecting inflation to remain in double digits for at least the next 12 months. Also, according to the results of the survey, there is a risk that the yields of government bonds will remain in the double-digit area for the next 12 months," said Adrian Codîrlașu, vice-president of the CFA Romania Association.

(Photo: Oleg Kachura/ Dreamstime)