Romanian analysts' sentiment deteriorates amid ongoing fiscal slippage

The macroeconomic confidence indicator calculated by CFA Society Romania based on a survey among its members shows gloomier sentiment in June: 54.2 points on a 0 to 100 scale (with 0 indicating worst sentiment), 4.8 points down from May but still above the 50-point benchmark that indicates balanced sentiment.

The decline was prompted by the sudden 9.1-point deterioration in analysts' expectations to 47.7 points.

The expectations related to inflation have particularly deteriorated, and analysts now project an 8.21% increase in consumer prices over the coming 12 months. The central bank's target for headline inflation in mid-2024 is 5.2%.

The analysts surveyed by the CFA Society expect the government to end the year with a general deficit of 5.5% of GDP – 0.6% of GDP above the unofficial target accepted by the European Commission (4.9% of GDP) and 1.1% of GDP above the initial 2023 deficit target.

"In the context of the high budget deficit and expectations of indirect tax increases, the confidence in the economy has plummeted. Consistent with this development, a certain rebound in inflation expectations is seen. Thus, both the anticipated inflation for the next 12 months and the ROBOR 3M interest rate increased compared to the values [of the anticipations] recorded in the previous year. Also, as additional taxation leads to weaker demand, economic growth expectations have also decreased compared to the previous exercise", said Adrian Codirlaşu, vice-president of the CFA Romania, quoted by Bursa.ro.

For 2023, the real GDP growth was lowered year-on-year to 2.5%. The Government debt as a percentage of GDP is expected to increase to 55% over the next 12 months.

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