EC Autumn Forecast for Romania: strong growth this year, steep slowdown in 2023-2024

The European Commission (EC) revised its forecast for Romania's economic growth this year upwards to 5.8% (from 3.9%), 1.2pp above the Government's forecast (4.6%), under the Autumn Forecast.

But it expects a marked slowdown to an average growth rate of 2.0% p.a. in 2023-2024, as opposed to the Government, which hopes for a nearly double average growth rate of 3.8% p.a. amid steep recovery.

Prime minister Nicolae Ciuca, however, skipped the more gloomy part of the Forecast and focused on the rather unexpected upward revision for this year. The upgrade "gives Romanian and foreign investors more confidence," PM Ciuca said on November 11, arguing that the performance was driven by the Executive's efforts to keep the energy prices affordable and by public and private investments.

The Autumn Forecast seems overly optimistic as regards Romania's growth this year (but not in 2023-2024) while expressing similar views on inflation: seen at only 11.8% YoY this year on average (versus the Government's estimate of 13.5%) but more realistic and significantly higher than Government's expectations in the coming years. Thus, the EC says it expects a 10.2% average inflation in 2023 (Government: 9.6%) followed by a 6.8% average inflation rate in 2024 (Government: 5.7%) - more in line with the views expressed by the National bank of Romania.

As regards the growth drivers in the coming years, the EC (just like the Government) counts on investments, fueled by the expected inflow of EU funds, rather than on private consumption, "expected to remain just positive" as inflation is reducing households' disposable income, while government support schemes and a resilient labour market offer some support.

When it comes to the twin deficits, the EC is visibly more sceptical compared to the Government's plans. Thus, it sees Romania's current account (CA) gap at 9.1% of GDP this year to close marginally down to 8.4% of GDP in 2024. This is 0.3-0.5pp per annum more than Government's projection.

Similarly, the public deficit is seen some 0.5pp per annum above the Government's plans: 6.5% in 2022, 5% of GDP in 2023 and 4.8% of GDP in 2024.

Still, due to the sharp rise in nominal GDP (partly owed to high inflation), the public debt to GDP ratio is seen as staying safely under the 50% benchmark (actually under 48%).