July 12 (SeeNews) - The European Commission said on Thursday that Romania’s economy is expected to expand by a real 4.1% in 2018, as compared to 4.5% growth projected earlier.
The growth of Romania's gross domestic product (GDP) in 2019 is forecast at 3.8%, down from 3.9% projected in May, the Commission said in its Summer 2018 Economic Forecast publication.
"The Romanian economic boom has started to wind down. After reaching a post-crisis peak of 6.9% in 2017, real GDP growth decelerated to 4% on the year in the first quarter of 2018," the EC said.
The main driver of the slowdown was a contraction in private consumption as inflation weighed more heavily on real disposable income, the Commission said. Export growth, in contrast, remained very robust in the first quarter of 2018 and outpaced the growth of imports.
The composition of growth is expected to become more balanced as private consumption growth tempers and investment strengthens on the back of a pick-up in the implementation of projects financed by EU funds, the EC added.
The EU's executive body expects inflation to further pick up this year as to the reversal of the January excise duties cut in October 2017 will exert additional pressure on consumer prices. Thus, inflation is forecast at 4.4% in 2018 and 3.4% in 2019.
Romania's annual consumer price inflation stood at 5.4% in June, at the same level as in the previous month, INS said.
On May 9, Romania's central bank BNR raised its annual inflation forecast for this year to 3.6% from 3.5%, outside of its target band of 1.5-3.5%.
On June 4, BNR maintained its monetary policy rate at 2.50%.
BNR last changed its monetary policy rate on May 7, hiking it to 2.50% from 2.25%, its third rate hike this year.
"In response to the rising inflation, the National Bank of Romania has started to tighten its highly accommodative monetary policy," the Commission said.
Regarding the labour market, the Commission noted that conditions are expected to tighten further, with unemployment remaining close to its current very low level. Nominal wage growth is expected to continue in 2018, albeit at a slower pace, on the back of further increases in public wages and an additional 9% hike in the net minimum wage as of January 2018. Real wage growth, however, is expected to moderate significantly in 2018, due to the higher inflation, the Commission said.
Romania's unemployment rate rate remained unchanged at 4.6% in May compared to the previous month, INS data shows.
(1 euro=4.6596 lei)