Romania is the European Union champion with the highest economic growth in the first quarter of 2021, followed by Cyprus with a 2% increase, Hungary with a 1.9% increase and Lithuania with a 1.8% increase, according to preliminary data reported by Eurostat. did.
Compared to the same quarter last year, Romania’s GDP is exactly the same. That is, the Romanian economy has fully recovered after the COVID 19 pandemic and is now registering for resumption.
After this progress, analysts believe that the Romanian economy has a great opportunity to end the year with a GDP growth rate of 7%.
The government initially predicted a 4.3% increase for the full year, but recently changed to 5%. This is a goal that will definitely change in a good farming year, as shown, but it is also an increase beyond industry expectations.
The European Commission has indicated in its spring forecast that Romania’s economic progress this year will be 5.1%, and the IMF has revised that estimate to 6%.
The fund expects Romania’s economy to grow 4.8% in 2022, the April edition of the World Economic Outlook (WEO) report said.
The IMF also predicts that GDP in emerging and developing European regions, including Romania, Russia, Turkey, Poland, Ukraine, Hungary, Belarus, Bulgaria, Serbia and Croatia, will grow 4.4% in 2021 and 3.9% in 2022. He said he was. ..
Romania’s economy after a milder than expected decline in 2020 COVID19 crisis Nevertheless, uncertainty remains high given the unpredictable development of the pandemic and the potential for disruption of vaccine supply. The budget deficit is projected to gradually decline due to initial fiscal consolidation efforts and strong GDP growth.
Strong recovery in the future
According to Eurostat, real GDP is projected to increase by 5.1% in 2021 and 4.9% in 2022. Private consumption is expected to recover as vaccination progresses and social distance measures are gradually lifted.
The phased introduction of RRP-based projects is set to provide new impetus for investment growth. After a sharp contraction in 2020, exports are expected to recover in 2021, supported by a gradual recovery in world trade, and increased personal consumption should spur import growth. Overall, the contribution of net exports to growth over the forecast period remains negative. The current account deficit is expected to decrease slightly to 4.9% in 2021 and 4.6% in 2022.
The policy measures adopted in 2020 to limit unemployment helped limit the rise in the unemployment rate from 3.9% in 2019 to just 5%.
The unemployment rate is projected to reach 5.2% in 2021. This is due to the increase in the workforce, as employment of personnel appears to be largely stagnant.
The unemployment rate is expected to decline in 2022 due to increased employment.
Nominal wage growth is projected to be relatively stable over the forecast period, but clearly lower than the double-digit rates seen in recent years.
HICP inflation fell from 3.9% in 2019 to 2.3% in 2020, primarily due to sharp declines in oil prices and falling food and service prices. Inflation is projected to rise to 2.9% in 2021, mainly as a result of oil price recovery and higher electricity prices after market liberalization. After that, it is expected to drop to 2.7% in 2022.
Risks to economic growth forecasts
The risks to economic growth forecasts are generally balanced.
On the other hand, the effects of confidence and the unexpected progress of projects funded under the RRP could further boost domestic demand. However, if the RRP implementation is delayed, the recovery can be more modest.
The forecast follows the authorities’ backloaded forecasts for the implementation of the plan, and only a limited amount of grant allocation will be used in 2021 and 2022.
Declining budget deficit
The general government deficit was 9.2% of GDP in 2020, almost 5 pps. GDP is higher than the previous year. This increase was primarily the result of existing expansion policies, including double-digit increases in pensions, and the impact of temporary measures against the COVID 19 pandemic and the overall deterioration of the macroeconomic environment. However, the government avoided a further increase in deficits and debt by overturning previous decisions to increase pensions by 40% and double children’s allowances.
The deficit is projected to decrease to about 8% of GDP in 2021. This improvement was primarily due to the suspension of new increases in pensions and public wages, additional reductions in some bonuses and other spending, and the partial withdrawal of emergency measures. In addition, the economic recovery is projected to benefit financial conditions from increased earnings.
If the economic recovery continues in 2022 and crisis-related measures are terminated, the budget deficit is expected to decrease further to 7.1% of GDP.
In addition, while the suspension of public wage increases will continue, pensions are expected to be increased according to standard index rules rather than at a faster pace than previously planned.
General government debt increased significantly in 2020 to 47.3% of GDP. In 2021, public debt will increase at 49.7% of GDP and is projected to continue to increase in 2022, primarily due to the still high primary deficit.
Fiscal forecasts are at upward risk as the Romanian government announces a medium-term fiscal policy plan to reduce the deficit to less than 3% of GDP by 2024. This should be accompanied by 2022 deficit reduction measures.
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