EC expects Romania’s economy to drop by 6% this year

Romania's GDP is projected to decline sharply in 2020, by 6%, after several years of robust growth, according to the European Commission's Spring Forecast.

The EC thus revised its forecast for Romania's 2020 GDP by nearly ten percentage points compared to the Winter Forecast of February 2020 when the country's economy was expected to grow by 3.8%.

Under the revised projection, private consumption, the main driver of growth in recent years (+5.2% in 2019), is expected to be impacted severely by the lockdown measures and contract by 6.2%.

Uncertainty is expected to hurt investment decisions pushing down the gross fix capital formation by 15%, after the outstanding 18.2% surge in 2019.

On the upside, thinner domestic demand will result in net exports contributing positively to the GDP growth (+1.2 pp) as the imports (-14.4%) will predictably shrink more than the imports (-12.8%).

Unemployment is set to increase moderately to 6.5% this year (from 3.9% in 2019) to ease at 5.4% in 2021.

Inflation should decline from 3.9% in 2019 to 2.5% this year (under HICP definition) due to the drop in oil prices.

In 2021, Romania's economy is expected to rebound, and record a growth rate of 4.2%, though not to pre-crisis levels.

The European Commission also expects Romania's budget deficit to increase to 9.2% of GDP this year (compared to Government's 6.7%-of-GDP target) as the fiscal measures required to fight the COVID-19 crisis come on top of past fiscal slippages. The fiscal gap will widen even more in 2021, to hit 11.4% of GDP, according to the EC forecast. The projections include the scenario of a 40% pension hike this September. The public debt-to-GDP ratio is forecast to rise from 35.2% in 2019 to almost 55% in 2021.

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