After the strong expansion in recent years, Romania’s economic growth is projected to slow down to 3.2% in 2020 and then increase to 3.7% in 2021, according to the latest estimates of the Organization for Economic Cooperation and Development (OECD).
Despite relatively high inflation, OECD expects the monetary policy to remain on hold “as risks of overheating subside.”
Growth will continue to be driven by private consumption, this time supported by higher pensions while the wage increases will slow down to single-digit rates.
However, pension increases will negatively impact both the budget and the external balance.
“To reduce the fiscal deficit, the Government should reconsider the scope and/or the timetable of the pension reform,” OECD stressed.
Otherwise, the consolidation effort may have to rely on spending cuts in priority areas, including education, health and infrastructure. Increasing taxes that are the least distortive to growth, such as environmental and property taxes, could also be considered.