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BUCHAREST (Romania), December 21 (SeeNews) - Italian banking group Intesa Sanpaolo said on Wednesday it has raised its 2016 economic growth estimate for Romania to 4.6% from 4.0% projected earlier.
The lender maintained its 2017 GDP growth forecast at 3.4%, as growth is expected to slow down and inflation to accelerate since the effect of the fiscal stimulus will wear off, the budget deficit constraints will limit the room left for more fiscal stimulus, and the VAT cut effect on prices will evaporate, Intesa Sanpaolo said in a December forecast note which considers the countries where it has subsidiaries.
Romania's GDP grew 3.8% in 2015, fuelled by domestic demand and higher investments and private consumption, which were backed by growing wages, low interest rates and falling prices.
"The strong real economic growth expected in 2016 in Romania among all of the EU countries was by and large fueled by a continuous fiscal stimulus over the course of the year," the lender added.
As a consequence, domestic retail sales performed well, which was not reflected in the inflation data mainly due to the VAT cut at the beginning of the year, but also because of the disinflationary forces at international level, of which low energy prices was the most important one.
Romania's annual consumer price deflation deepened to 0.7% in November from 0.4% in October influenced by the VAT cut to 20% from 24%, in force from the beginning of 2016. At the beginning of November, Romania's central bank, BNR, kept its 2016 inflation forecast for this year unchanged at -0.4% and raised its projection for next year to 2.1%.
In its forecast, Intesa Sanpaolo noted that the negative inflation in 2016 has allowed the Romanian central bank to maintain abundant liquidity conditions in the domestic money markets and therefore, prices of local currency bonds were strongly supported and yields fell. The bank now expects that at end-2016 average CPI will stand at -1.5%, before returning to positive territory (+2.1%) in 2017.
The lender has also increased its 2016 loan growth forecast from 2.5% to 3.0% and kept the forecast for 2017 at 3.5%.
"Private credit creation in 2016 is likely to be modestly positive, according to the data available. Double-digit RON credit growth was, in part, canceled out by the FX credit contraction," ISP added.
Looking forward, credit creation is likely to be supported by several factors: ongoing abundant liquidity conditions in the EUR markets, which will allow the Romanian central bank to maintain loose conditions in the RON markets, and a new romanian government which will need to be supportive for private consumption, Intesa said.
BNR's monetary policy rate has stayed at 1.75% since May 2015 following a cut from 2.0%.
Intesa Sanpaolo Group is present in Romania since 2008, through Intesa Sanpaolo Romania Bank.