March 14 (SeeNews) - Erste Group analysts said they expect Romania's economy to grow by a real 4.7% in 2018 driven by household consumption.
In its previous forecast made in December, Erste said Romania's economy would grow by a real 4.1% in 2018.
"We have revised upwards our economic growth forecast to 4.7% in 2018, as global economic activity continues to strengthen and local investments are already performing better," Erste said in its latest macroeconomic outlook on Romania on Tuesday.
Erste said it foresees a normalization of growth this year after a very strong rise in real GDP in 2017, which was explained by one-off items like agricultural output and the impact of an ultra-loose fiscal policy on consumption.
In February, Romanian finance ministry analysts raised their 2018 growth forecast to 6.1% from 5.5% based on expectations of more robust performance across sectors than originally projected.
Romania's economy expanded by 7% year-on-year in 2017 compared to a growth rate of 4.8% in 2016, provisional figures from Romania's statistical office INS show.
Romania's inflation rate will remain well above the central bank's target until the autumn, due to statistical effects related to previous cuts in taxation and increases in administered energy prices, Erste analysts added. Romania's annual consumer price inflation quickened to 4.3% in January from 3.3% in December, reaching a five-year high, data from INS show.
In February, Romania's central bank BNR increased its 2018 inflation forecast to 3.5% from 3.2%.
Regarding monetary policy, Erste said that risks of second round inflationary effects are present, amid decelerating but still robust household consumption, and that the BNR could deliver two more hikes in the policy rate to 2.75% this year.
On February 7, BNR increased its monetary policy rate to 2.25% from 2.0% - the second rate hike in as many months.
"We see these two remaining hikes in 2018 as data-dependent (local inflation prints) and connected to the decisions of other central banks in the CEE region in order to avoid a high interest rate differential," Erste analysts said.
Also, the monetary tightening cycle and a gradual decrease in the liquidity surplus from the money market should flatten the short end of the yield curve, according to Erste. At the same time, 10-year yields are vulnerable to a change in investor sentiment towards emerging markets, due to the extreme flatness of the 5-year and 10-year segment, analysts said.
Austria's Erste Group owns Banca Comerciala Romana (BCR), Romania's top bank by assets.
(1 euro = 4.6622 lei)