March 16 (SeeNews) - Raiffeisen Bank Romania said on Thursday it has revised its forecast for the country's 2017 economic growth to 4.2% from 3.6%, to be driven by higher domestic demand and export of goods.
Romania's fourth-quarter gross domestic product (GDP) grew by 1.3% on the quarter and by 4.7% on the year, above the bank's expectations and analysts’ consensus, Raiffeisen Bank said in an economic overview on Thursday.
Still, domestic demand dynamics disappointed in the last quarter, as private consumption was flat on quarterly basis and gross fixed capital formation fell again, it added.
"Given the additional fiscal stimulus passed by the new parliamentary majority, we have revised upwards the GDP growth for 2017, from 3.6% to 4.2%. Domestic demand (consumption and investments) should remain the main growth driver in 2017, but exports of goods and services should also continue to grow," analysts said.
Romania's 2017 budget bill is built on projections of 5.2% economic growth and sets deficit equivalent to 2.99% of GDP, a target that many find too ambitious.
In 2016, Romania's economy expanded by 4.8% year-on-year compared to a revised growth rate of 3.9% in 2015.
Raiffeisen Bank sees Romania's annual inflation at 1.7% in 2017 and at 2.7% in the first quarter of 2018. Romania's annual inflation accelerated to 0.2% in February from 0.1% in January, according to the national statistical office, INS.
Romania returned to inflation in January following 19 straight months of deflation that began in June 2015 after a 9% cut in VAT rate was expanded to include all food items, non-alcoholic beverages and food service activities. In addition, Romania cut its standard VAT rate from 24% to 20% from the start of 2016.
At the beginning of February, Romania's central bank, BNR, lowered its 2017 inflation forecast to 1.7% from previously projected 2.1%.
Regarding monetary policy, Raiffeisen said it expects BNR to keep its monetary policy rate unchanged at 1.75% in 2017.
"Still, we expect the BNR to tighten the monetary policy stance earlier, i.e. in the second half of this year, by increasing the interest rate for the permanent deposit facility (0.25% at present), " Raiffeisen analysts pointed out.
On February 7, BNR maintained its monetary policy rate at record low 1.75%, in line with analyst expectations. The central bank last changed the rate in May 2015, when it cut it by 25 basis points.
Raiffeisen also noted that the yield curve for lei-denominated government securities has steepened over the past month as yields at the long-end increased while those at the short-end remained unchanged.
"Prospects of increasing macroeconomic imbalances should amplify the awareness of investors in the local bond market. We expect the RON yields to increase further by the end of the year," the bank said.
(1 euro=4.5509 lei)
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