BUCHAREST (Romania), February 13 (SeeNews) - Romania’s economy is expected to expand by a real 3.8% this year, the European Commission (EC) said on Thursday, increasing its November forecast for gross domestic product (GDP) growth of 3.6%.
For 2021, the Commission predicts GDP growth of 3.5% in Romania, up compared to 3.3% projected in November, the EU's executive body said in its Winter 2020 Economic Forecast report.
The significant fiscal stimulus planned in 2020 and 2021 is expected to give a new boost to private consumption while also stimulating imports, the Commission said.
Also, investment is expected to remain strong in 2020, supported by construction and greater use of EU investment funds. The reversal in early 2020 of fiscal measures introduced in December 2018 concerning the taxation of the banking and energy sectors is expected to favour private investment, the Commission said.
According to the Commission, the contribution of net exports is expected to remain negative over the forecast horizon, leading to a worsening of the already high current account deficit.
The EC said that risks to the growth forecast are tilted to the downside. However, the fiscal policy stance will be a key determinant of the evolution of economic growth in 2020 and 2021, as a continuation of expansionary fiscal policies aggravating existing macroeconomic imbalances could affect investors’ confidence and lead to higher funding costs.
Conversely, the start of much needed fiscal consolidation would contribute to the unwinding of the accumulated imbalances but would also result in somewhat lower economic growth over the forecast horizon, the Commission said. Also, more legislative unpredictability or rapidly deteriorating fiscal deficit could also affect the business environment in Romania and have a detrimental effect on investment decisions.
After a 4.1% peak in 2018, Romania's Harmonised Index of Consumer Prices (HICP) inflation declined slightly and averaged 3.9 % in 2019. The decline in headline inflation in the second half of 2019 was mainly due to decreasing food and energy prices, the Commission noted.
According to the Commission, the annual average rate of inflation is forecast to decline to 3.4% in 2020 and to 3.3% in 2021. Core inflation remained high in 2019, growing at an annual 3.8%, but is expected to decrease in 2020 and 2021.
Economic growth in the euro area is expected at 1.2% in 2020 and 2021, while in the EU it is estimated at 1.4% for both this year and next, the Commission said. Figures are the same as in the EC's November forecast.
(1 euro = 4.7597 lei)