EBRD: Romania’s economy will contract by 4% this year, rebound by 4% in 2021

Romania is likely to see a contraction of 4% of its gross domestic product (GDP) in 2020 because of the economic impact of the coronavirus pandemic. Still, the local economy should recover rapidly in 2021 with a GDP growth of 4.0%, the European Bank for Reconstruction and Development (EBRD) says in its latest macroeconomic forecast published on May 13.

“The domestic lockdown is reducing private consumption of services involving face-to-face contact and durable goods, which together account for around 30% of the total spending in Romania. This impact may be somewhat compensated by an increase in food spending, which accounts for 25% of total spending, the largest share in the EU,” reads the EBRD Regional Economic Prospects.

The report also says that investment has been falling amid uncertainty and bearish market sentiment. At the same time, liquidity pressure and disruption of supply chains may interrupt ongoing investment projects.

Romania’s contraction partly comes the country’s significant exposure to the strongly affected Italian economy – goods exports to Italy account for about 10% of total goods exports. Moreover, Italy is also an important source of remittances for Romania, accounting for about one-third of the country’s remittance inflows.

The private sector should drive the 2021 recovery as it bounces back. Growth will, however, depend on a gradual relaxation of domestic restrictions to curb the spread of the virus and a return to normality during the second half of the year.

In Romania’s region, Poland and Hungary are expected to see a lower economic contraction (-3.5%). Meanwhile, the economies of Croatia, Latvia, and Lithuania could decline by 7% this year, according to EBRD estimates. Bulgaria’s economy is expected to contract by 5%.

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