BUCHAREST (Romania), May 16 (SeeNews) - The European Commission said on Monday that Romania’s economy is expected to expand by a real 2.6% in 2022, as compared to 4.2% growth rate projected in February.
The economic slowdown comes as inflation erodes disposable income and Russia’s war of aggression against Ukraine affects economic sentiment, supply-chains and ultimately investment, the Commission said in its Spring 2022 Economic Forecast report.
Romania's gross domestic product (GDP) is forecast to expand by 3.6% in 2023, as compared to an increase of 4.5% estimated in the winter projection.
The Commission estimates that Romania’s economy rose 5.9% in 2021, mainly driven by strong domestic demand.
According to the EC, in early 2022 Romania’s economy was already showing signs of momentum loss, as high inflation at the end of 2021 reduced purchasing power and private consumption. This trend has been aggravated by Russia’s invasion of Ukraine, which further lifted inflation and hampered economic sentiment, while adding to supply bottlenecks, the Commission said.
Against this backdrop, private consumption is set to grow only moderately in 2022, before picking up somewhat in 2023 when inflation slows down, according to the report. Despite increasing interest rates, supply shortages and higher prices for construction materials, gross fixed capital formation is forecast to grow at 4.8% for 2022 thanks to support from the Recovery and Resilience Facility, which is also expected to be the main driver for investment in 2023, the EC noted.
The Commission assessed that risks are mainly on the downside for economic growth and vice-versa for the inflation, as the situation depends very much on the length and the severity of the conflict, as well as on global trade frictions. Still, there are also risks to the upside, as gross fixed capital formation might be positively impacted by productive process relocations from Ukraine and Russia, while the labour market could integrate more people fleeing Ukraine than initially assumed, it added.
Unemployment is projected to stay around 5.5% while price levels growth will peak this year and gradually reduce over 2023, according to the EC report. The general government deficit is forecast to reach 7.5% of GDP in 2022 before decreasing to 6.3% in 2023, bringing the debt-to-GDP ratio up to 52.6% by 2023, the Commission added.
The general government debt is projected to rise to 50.9% of GDP in 2022, and 52.6% in 2023, mainly due to high deficits, the EC concluded.
(1 euro=4.9469 lei)