OTP Bank sees Romania’s economic growth below 2% this year

Romania’s economic recovery will slow substantially in 2022, and the GDP growth is estimated to stay below 2% this year as inflation erodes real income, monetary policy tightens and supply chain problems could further develop, according to a research note published by OTP Bank Romania.

“Given global and regional developments, we see risks regarding GDP growth to the downside, while the inflation and interest rate outlook are subject to upside risks,” the report reads.

Regarding inflation, OTP bank sees it peaking at 9.5% in April-May, forcing the National bank of Romania (BNR) to further hike the refinancing rate up to 4.5% at the end of the year.

The data for January-February suggest mild improvements after economic stagnation in Q4 last year, but the Russia-Ukraine conflict deteriorates the outlook - the analysts of the Hungarian bank argue. Admitting that Romania’s trade ties with the two countries are moderate, they expect the higher energy prices, slower euro area growth and the increasing risk premium to take their toll on activity and fuel the increase of inflation.

As regards the public finance, OTP Bank sees the Government as observing the planned fiscal consolidation plans - while some slippages are likely given the increasing energy subsidies, proposed tax cuts and slowing growth.

“In our current forecast, government debt could increase to 55% of GDP by 2023,” the report reads.

(Photo source: OTP Bank)