February 7 (SeeNews) - The European Commission said on Wednesday it has raised its projection for Romania’s economic expansion in 2018 to a real 4.5% from 4.4% forecast in November.
The growth of Romania's gross domestic product (GDP) in 2017 is estimated at 6.7%, up from 5.7% predicted in November, the Commission said in its Winter 2018 Economic Forecast.
"The main driver of growth was private consumption, supported by indirect tax cuts and wage hikes both in the public and the private sectors. After contracting in 2016, total investment started to grow again in 2017. Its pace of recovery, however, remained subdued as public investment fell sharply for the second consecutive year," the Commission said.
The boom in private consumption has led to an increase in imports.and as a consequence, net exports have acted as a drag on real GDP growth.
Looking ahead, the Commission expects growth of private consumption to be more tempered in 2018, as inflation weighs more heavily on real disposable incomes and wage growth slows down.
"Nevertheless, private consumption is expected to continue acting as the main growth driver over the forecast horizon and investment is forecast to strengthen on the back of a pick-up in the implementation of projects financed by EU funds," the Commission said.
On Tuesday, Romanian finance ministry analysts said they have raised their forecast for the country's 2018 economic growth to 6.1% from 5.5%, based on expectations of more robust performance across sectors than originally projected.
Romania's annual economic growth accelerated to 8.8% unadjusted in the third quarter of 2017 from 6.1% in the previous quarter, according to preliminary data of the office of national statistics, INS.
After two consecutive years of falling consumer prices, inflation turned positive in 2017, despite being dampened by VAT rate cuts and lower excise duties on fuel, the Commission said.
The EU's executive arm now expects headline inflation to further pick up as demand pressures mount and the effect of the January 2017 tax cuts fades away. Thus, inflation is forecast to be 4.1% in 2018 and 3% in 2019.
Romania's annual consumer price inflation accelerated to 3.3% in December, from 3.2% in November, according to the latest data available from the country's statistical office INS.
On Wednesday, Romania's central bank said it will increase its monetary policy rate to 2.25% from a previous 2.0% as of February 8 - the second rate hike in as many months.
Regarding the labour market , the Commission noted that conditions have been improving in line with the economic expansion, as in 2017, the
unemployment rate dropped to its lowest level in more than 20 years.
"Real wages are expected to continue growing in 2018, albeit at a slower pace, due to further increases in public wages and an additional 9% hike in the net minimum wage taking effect in January," the report showed. Overall, average net wages are estimated to have increased by around 13% in real terms in 2017.
Romania's unemployment rate edged down to 4.6% in December, from 4.7% in November, INS data showed.
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