UniCredit expects Romania’s economy to plunge by 9% this year

UniCredit Bank forecasts Romania's GDP will plunge by 9% this year, more than the worst projections presented so far by the rating agencies, European Commission (-6%), and international financial institutions.

According to the bank's latest quarterly macroeconomic and strategic report, the country's economy will restart in the third quarter of the year (Q3) after a massive economic slowdown in Q2. But the country's economy could take back in 2021 the ground lost this year, the bank says on an optimistic note, according to Economica.net.

UniCredit's scenario includes high unemployment rates, which could peak at 9% this year and ease in 2021, but not below 6%. This will depress domestic consumption.

Despite a stimulus package worth over 2% of GDP, UniCredit expects Romania's budget deficit to reach at least 6% of GDP, which looks highly optimistic at first sight. However, the 6%-of-GDP public gap does not include the 40% pension hike scheduled for September under the pension law already in force. It also does not include the impact of populist bills passed by the Parliament (where the Social Democrat opposition holds a volatile majority) that could alone take the public gap to over 8% of GDP.

Separately, UniCredit mentions that the central bank "has not abandoned its preference for steady currency" and expects it to defend the RON 4.8-4.9 to EUR exchange rate.

As for inflation, the bank expects it to drop in the short term below the target to later rise during 2021 on low base effects but also to reflect higher food prices prompted by a difficult agricultural year.

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