"From the second half of 2008, domestic demand is expected to moderate, leading to a still very high GDP growth rate of 8.5% for the whole of 2008, also due to a positive one-off effect from agriculture, following the severe drought in 2007 [...] The fiscal loosening continues and the budget deficit is expected to deteriorate from 2.6% of GDP in 2007 to almost 3.5% of GDP in 2008," the commission said in its autumn economic forecasts, made available on Monday.
"[Economic] Growth is anticipated to fall to 4.75% in 2009 and to 5.0% in 2010. Domestic demand is expected to slow down due to tighter credit conditions induced by monetary policy and the general global financial situation. In addition, it is likely to be affected by a decrease in consumer and investor confidence," the commission also said.
Wage and exchange-rate developments, compounded by supply-side shocks, have fuelled an upturn in inflation, which is expected to edge up to 7.75% in 2008, from 4.9% in 2007. As both supply and demand pressures are expected to ease somewhat over the forecast period, the EU executive projects the inflation to slow down to 5.75% in 2009 and to 4.0% in 2010.
Export growth is set to decelerate on the back of lower growth prospects in the euro area, which represents about 70% of all exports. However, further foreign direct investment-driven improvements in export competitiveness are likely to play a more prominent role towards the end of the forecast period. Hence, the current account deficit is expected to ease from almost 14% of GDP in 2007 to around 12.5% in 2010, the report said.
The labour market continues to tighten, with unemployment decreasing to a record low of around 6.0% in the first half of 2008, the commission said. Shortages on the labour market have also driven up gross wages, which have risen by 25% year-on-year in July. Unemployment is expected to slightly pick up in 2009 and fall back again in 2010.
Details of the European Commission's projections about Romania's economic development follow (annual percentage change):
NOTE: (a) Eurostat definition.
