EC improves Romania's GDP growth forecast on stronger domestic demand

The European Commission (EC) improved its economic forecast for Romania, expecting a 2.5 percent GDP growth this year and a 2.6 percent growth in 2015, according to the spring forecast published on May 5. The previous forecast released in February mentioned a 2.3 percent GDP growth for 2014 and 2.5 percent for 2015. According to the EC, domestic demand is expected to be the main driver of growth for Romania in the following years. “Romania’s economy beat expectations by growing as much as 3.5 percent in 2013. Economic growth was driven by a robust industrial output and an abundant harvest feeding strong exports. Growth is set to slow, but to remain robust at 2.5 percent in 2014 and 2.6 percent in 2015. It is projected to remain above potential over the forecast horizon thanks to improved confidence and more supportive international conditions, thereby further reducing the still negative output gap. Structural reforms, such as the liberalization of energy markets and the new labor code, are starting to bear fruit. Domestic demand is expected to gradually overtake net exports as the main driver of growth”, the EC says. Investment is projected to regain momentum this year, supported by better absorption of EU funds as major infrastructure projects move ahead. Private consumption is expected to pick up moderately as consumer confidence improves and disposable income increases on account of higher real wages. At the same time, credit growth, which was in negative territory in 2013, is expected to remain constrained by the ongoing deleveraging of households and banks. The EC expects Romania to have an inflation rate of 2.5 percent in 2014 and 3.3 percent in 2015. Unemployment should slowly decrease from 7.3 percent in 2013 to 7.2 percent in 2012 and 7.1 percent in 2015. Read the full report here. Andrei Chirileasa, andrei@romania-insider.com