August 17 (SeeNews) - Romania's economic growth is expected to quicken to 4.5% in 2016 after it spiked to an unexpected nearly 8-year high in annual terms in the second quarter of the year, Erste Group analysts said on Tuesday, revising an earlier projection.
"Real GDP exceeded all expectations and grew by 1.5% quarter on quarter and 6% on the year in the second quarter. Our forecast and market expectations were both at 4.1% year-on-year," Erste said in its latest CEE Insights report.
The possible key drivers for the growth were the acceleration of gross fixed capital formation after weak growth in the first quarter and a hefty increase of household consumption, the analysts added.
However, Erste cut its growth estimate for next year to 3.4% from 3.6%.
"Possible measures to keep the budget deficit under control in 2017 could, on top of the external risks, weigh on next year’s growth," the analysts commented.
On the monetary policy front, Erste expects the central bank, BNR, to keep the key rate unchanged in 2016 and 2017 due to weak inflationary pressures and to easing monetary policies by large central banks around the globe. In a previous report in March, Erste said that BNR could hike the key rate to 2% in the first quarter of 2017.
At its last monetary meeting in August, BNR maintained its monetary policy rate at a record low of 1.75%. The central bank last changed the rate in May 2015, cutting it by 25 basis points.
Erste also projected that annual inflation rate would be at minus 0.2% in December 2016 and at 1.7% in December 2017.
Romania's annual consumer price deflation accelerated to 0.8% in July from 0.7% in June.
At the beginning of August, BNR, said it sees annual inflation remaining in negative territory longer than previously expected, until the end of 2016. In its previous forecast in May, the bank said it expected deflation to persist until July, a month later than previously envisaged.
The bank now expects the country to post an end-year deflation of 0.4% this year, before it turns to inflation of 2% at end-2017. Its previous estimates were for end-year inflation of 0.6% in 2016 and 2.7% in 2017.
Romania's annual inflation rate turned negative last June under the impact of broadening the scope of the 9% reduced VAT rate to all food items, non-alcoholic beverages and food service activities.
Romania's end-2015 deflation stood at 0.9%.