Romania’s economy will continue in 2019 and 2020 the soft landing started in 2018, with the twin deficits (current account and budget) still projected to continue to widen, according to the Spring Forecast issued by the European Commission on May 7.
Romania’s GDP will thus increase by only 3.3% this year after it decelerated to 4.1% in 2018 from the record 7.0% in 2017. The EC also expects Romania’s economic growth to slow down to 3.1% in 2020.
Romania’s positive output gap started to narrow in 2018 and is set to close progressively over the forecast horizon. Despite this, the trade balance is forecast to continue widening as a percentage of GDP, causing the current account deficit to increase to 5.2% in 2019 and 5.3% in 2020. The budget deficit is projected to further increase to 3.5% of GDP in 2019 and hit 4.7% of GDP in 2020.
The main driver of this projected deterioration is expenditure on old-age pensions, driven by the full-year effect of the 15% increase in the pension point of September 2019 and a further 40% rise in September 2020.
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