EC improves Romania’s economic outlook, looks for more fiscal consolidation
The European Commission (EC) improved its forecast for Romania's economic growth this year by 1.3pp to 5.1%, under the Spring Forecast published on May 12.
"After a milder-than-anticipated decline in 2020, Romania's economy is set to recover from the COVID19 crisis and return to pre-crisis levels of economic activity before the end of 2021. Nevertheless, uncertainty remains high given the unpredictable evolution of the pandemic and possible disruptions in the supply of vaccines. The budget deficit is projected to decline gradually on account of incipient fiscal consolidation efforts and strong GDP growth," the Commission's report reads.
The previous (interim winter) forecast was issued in February when the Commission was expecting the country's GDP to have contracted by 5.0% in 2020.
The better-than-expected actual performance (-3.9%) on the top of the upward revision sketches a significantly better overall image for how Romania's economy weathered the crisis.
For 2022, the Commission expects the country's economy to grow by 4.9% (4.0% under the interim winter forecast).
Despite the bullish growth outlook (or partly explaining it), Romania's twin deficit issue is likely to only gradually narrow.
Thus, the public deficit (under ESA methodology) will drop to 8% of GDP this year and 7.1% of GDP in 2022, from 9.2% of GDP in 2020.
Consequently, the gross public debt is seen at 52.7% at the end of 2022 (which is consistent with roughly 50% of GDP net debt).
The Government avoided an even larger increase in the deficit and debt by reversing earlier decisions to increase pensions by 40% and double the child allowance, the EC admits.
The fiscal forecast is subject to upside risks (smaller deficits), the Commission says, as the Romanian Government put forward a medium-term fiscal policy plan to reduce its deficit to less than 3% of GDP by 2024, which should be accompanied by deficit-reducing measures as of 2022.
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