SOFIA (Bulgaria), May 5 (SeeNews) - Bulgaria and Romania's economies will be under considerable stress in the next two years due to the war in Ukraine, but the IT sector will continue to drive growth in both countries, while in Romania opportunities are opening up in agriculture and the energy sector, Radu Cracan, an economic analyst with the European Bank for Reconstruction and Development (EBRD), said on Thursday.
"Romania and Bulgaria have become important IT hubs. The IT sectors will definitely continue to support growth. We saw this happening during the Covid crisis when it was one of the few sectors to expand," Cracan said in an interview for SeeNews.
"Due to the nature of the crisis, the main sectors that could benefit would be agriculture and the energy sector in Romania," he added.
Romania is an important agriculture producer, primarily of raw foods, he noted, adding that more investment could be expected in moving up the value chain.
"In the medium term we could also see some opportunities for mining in Romania, especially with the EU decision to become more independent in [the production of] semi-conductors and given that Romania has some important resources needed for battery and semi-conductor production, we could see some investment in this sector," he opined.
Cracan also recalled a recent decision by the Romanian government to unblock investments in offshore gas production.
Looking at the affected industries, he singled out construction, where the prices of materials have already increased significantly, which would probably also affect infrastructure investment, according to Cracan.
In March, the EBRD lowered its forecast for Bulgaria's gross domestic product (GDP) growth to 2.8% in 2022 and revised downward its expectations for Romania's economic growth this year to 2.8%.
Bulgaria and Romania are affected by the war in Ukraine through multiple channels, ranging from accelerating inflation to the tourism sector in Bulgaria, he said.
"A prolonged conflict beyond this year with active fighting will have a major effect on the region. This could translate into further energy and food prices increases which will affect private consumption and continuously elevated prices will start to be more visible also in core inflation indicators. These are tough conditions, especially for firms, and most of these pressures could translate into consumer price increases, affecting in general consumption and growth," the analyst commented.
Future energy import frictions, including a potential shutdown of Russian gas to the entire EU, could aggravate the situation further, according to Cracan.
"On the domestic front, given the supply chain issues and price increase, we could see a potential slowdown in investment which will also affect growth."
An optimistic scenario would include normalisation of inflation towards the end of this year, starting in the second half, he said, but noted that he is not optimistic in that respect.
"The way of helping households and firms would be through fiscal support and this implies increased fiscal spending and debt but in a way this is quite necessary in this context where households in Bulgaria and Romania have quite a large share of spending on core needs," he explained.
Bulgaria still has some fiscal support space, whereas in Romania the situation is more challenging, he noted.
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