European Commission Says Romania GDP Growth To Slightly Slow in 2008, Trade And Budget Gaps To Widen - Table

November 9 (SeeNews) - EU newcomer Romania's gross domestic product (GDP) will slow its growth rate to 5.9% in 2008 from the 6.0% forecast for 2007, while the country's budget and trade gaps are seen widening, the European Commission said on Friday.

"After reaching 7.7% in 2006, […] Real GDP growth is expected to decelerate only slightly, to 5.9% in 2008 and 5.8% in 2009. Strong, albeit somewhat slowing, domestic demand is projected to persist over the forecast period," the Commission said in its autumn 2007 economic forecasts.

GDP growth is expected to reach 6.0% this year, mostly fuelled by gross fixed capital formation, thanks to record growth rates in the construction sector, and a rebound of private consumption growth.

The pro-cyclical fiscal expansion continues and the budget deficit is expected to deteriorate from 1.9% of GDP in 2006 to 2.7% of GDP in 2007, mainly due to an increase in government consumption, in particular public wages, and social transfers. In 2008 and 2009, the deficit is expected to further widen to 3.2% and 3.9% of GDP respectively, the EC said.

Strong domestic demand dynamics will likely result in a further widening of the trade deficit to 15.5% of GDP in 2007, against a level of around 12% in 2006.

The increase in imports is projected to continue outpacing the growth of exports. This translates into a further widening of the net borrowing from the rest of the world, which is expected to reach around 15.5% of GDP in 2009, in spite of increased EU transfers and higher remittances from abroad.

The forecast said that in combination with strong demand-pull pressures, annual inflation is projected to average 4.75% in 2007. In 2008, average inflation is projected to edge up to 5.5%, largely reflecting negative carry-over effects from the 2007 agricultural supply shortfall and assumed rising international fuel and commodity prices. In 2009, these supply-push factors are expected to ease, leading to a moderation of the inflation rate to 4.5%.

Overall employment in Romania is expected to grow by 1.25% in 2007. Over the period 2008-2009 an average increase in employment of almost 1% is anticipated. The job creation process in the formal private sector will be sustained by foreign investments, offsetting the ongoing lay-offs in some labour-intensive industries, and by a further reduction of the informal economy. Unemployment is projected to decline slightly over the forecast period.

Details of the European Commission's projections about Romania's economic development follow:

Note: (a) Eurostat definition.