WB revises upward its forecast for Romania’s recovery

The World Bank (WB) expects Romania's economy to grow by 4.3% this year - thus fully reversing the 3.9% contraction in 2020 - and by another 4.1% in 2022, according to the latest edition of its Europe and Central Asia Economic Update.

This is a major upward revision of the WB's previous forecast issued in January when last year's contraction was estimated at 5% to be only partly offset by the 3.5% recovery in 2021.

The strength of the recovery will depend on the success of the vaccine rollout, the policy response to the health crisis, and developments in the EU, according to the WB report.

Also, the impact of the stimulus pursued at the EU level will play a critical role in Romania's recovery given its limited fiscal space.

Romania's central bank will continue its quantitative easing policy, further supporting the recovery. Still, as growth recovers, inflationary and current account deficit pressures are expected to reemerge, requiring an appropriate policy response, according to the report.

"A substantial reduction of the fiscal deficit in 2021 is improbable, as the Government will have to support the economic recovery process. Over the medium term, the deficit will follow a downward trajectory but is likely to remain above 3% throughout the projection period," the World Bank said.

According to its estimations, the widening fiscal deficit would push the public debt to 62.2% of GDP in 2023, from 37.3% in 2019.

Still, Romania's public debt remains one of the lowest in the EU. In 2021, poverty is projected to remain elevated in Romania due to the triple-hit in incomes facing poorer segments of the population, in the form of the persistent pandemic, the poor agricultural year, and declining remittances.

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