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BUCHAREST (Romania), January 15 (SeeNews) - Garanti Bank Romania, part of Turkish financial group Garanti, said on Monday it expects Romania's economy to grow by 4% in 2018, from an anticipated 6.5% in 2017.
The slowdown in 2018 is expected mainly due to a slower pace of industry and trade connected to a possible economic deceleration in Germany and Italy, two of Romania's top three export markets, it said in its latest macroeconomic report.
Romania's 2018 budget bill is built on projections for 5.5% economic growth and deficit equivalent to 2.96% of GDP.
The country's annual economic growth accelerated to 8.8% unadjusted in the third quarter of 2017 from 6.1% in the previous quarter, the country's statistical board INS said on Friday.
According to Garanti Bank, inflation will accelerate, most likely reaching a new peak in the first quarter of the year, while the yearly average could jump to 4% from 1.3% in 2017. Romania's annual consumer price inflation accelerated to 3.3% in December, from 3.2% in November, latest data from INS showed.
Regarding Romania's monetary policy, Garanti Bank said that the central bank BNR will react to increasing price pressure and raise the key rate to 2.75% in several hikes. Last week BNR increased its monetary policy rate to 2.0% from a record low 1.75%, the first rate hike in a decade. The central bank raised the deposit facility rate to 1.0% per annum from 0.75% per annum and the lending facility rate to 3.0% per annum from 2.75% per annum.
The current account deficit continues to widen but this process is unlikely to gain momentum as wages’ growth should be slower in 2018, the report showed. "The larger deficit which is accompanied by a possible investment climate deterioration may lead to depreciation pressures in 2018, pushing the euro/leu parity to 4.78 by the end of the year."
The Romanian leu weakened to an all-time low against the euro on December 29 amid unrest caused by protests against government plans to introduce controversial changes to the judicial system.
On Saturday, Fitch Ratings said it has affirmed Romania's long-term foreign and local currency issuer default ratings (IDR) at 'BBB-', with stable outlooks, but warned that the expansionary fiscal policy has weakened the country's public finances.
In November, Moody's Investors Service said that although Romania made material progress in correcting macroeconomic imbalances, these improvements could be eroded in the medium-term due to a loose fiscal policy and lack of reform.
Also in November, the European Commission said that Romania has failed to do enough to reduce its 2017 budget deficit and that the necessary annual adjustment needs to be at least 0.8% of GDP. The Commission warned that Romania may not meet its budget deficit target and urged the government to take action to avoid the opening of an excessive deficit procedure.
(1 euro=4.6256 lei)