EC expects Romania’s economy to fall less than most EU economies this year

Romania’s gross domestic product (GDP) is set to contract by 6% this year and then rebound by 4% in 2021, according to the European Commission’s summer forecast released on July 7. The summer forecast for Romania is almost unchanged compared to the spring one, which indicated a 6% contraction this year and 4.2% growth in 2021.

Thus, the EC expects Romania’s economy to be slightly more resilient than the majority of EU economies to the COVID-19 crisis. Countries in the Euro area are expected to record an average GDP drop of 8.7% this year and rebound by 6.1% next year, with double-digit declines expected for Italy (-11.2%), Spain (-10.9%) and France (-10.6%). Germany’s economy is expected to go down by 6.3% this year.

The most resilient EU economies this year should be Poland (-4.6%), Denmark (-5.2%), and Sweden (-5.3%).

“The Romanian economy showed signs of resilience in the first quarter of the year. Real GDP increased by 2.4% year-on-year (0.3% quarter-on-quarter), supported mainly by private consumption and the build-up of inventories. Gross fixed capital formation continued to grow, albeit at a significantly slower pace than in 2019 as a whole. Net exports weighed down on growth as exports fell due to the drop in external demand,” reads the EC report on Romania.

“Due to the lockdown triggered by the COVID-19 pandemic, real GDP growth is forecast to show a sharp drop in the second quarter of the year. Private consumption is expected to decline as a result of restrictions on movement as well as lower incomes. Uncertainty is set to weigh significantly on investment decisions this year, while construction activity could offer some relief. The reduced economic activity in Romania’s main trading partners is expected to take a significant toll on exports,” the report also says.

After falling sharply in the first half of 2020, economic activity is forecast to gain traction in the second half, as restrictions are gradually lifted, and to pick up further in 2021.

“Risks to the growth outlook are tilted to the downside. A second wave of infections in Romania or one of its main trading partners could delay the economic recovery. Another important factor is how the authorities address the fiscal trajectory concerns pre-dating the COVID-19 crisis, which, if unaddressed, may eventually feed into depressed investor confidence, higher financing costs, and a lower growth path” the EC warns.

(Photo source: ID 175141319 © Yevhenii Strebkov | Dreamstime.com)