June 28 (SeeNews) - Raiffeisen Bank Romania said it has revised its forecast for the country's 2017 economic growth to 4.9% from 4.2% forecast in March, due to stronger than expected advance in the first quarter.
Romania's first-quarter gross domestic product (GDP) grew by 1.7% on the quarter and by 5.7% on the year, above the bank's expectations and analysts’ consensus, Raiffeisen Bank said in an economic overview on Tuesday.
On the demand side, private consumption growth of 7.4% year-on-year and of 5.7% quarter on quarter was the main driver for GDP growth, but gains in quarterly terms were also recorded for investments and exports, it added.
"Given the faster than expected economic advance recorded in Q1, we have revised upwards our GDP forecast for the entire year 2017 to 4.9% from 4.2 % previously," 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, unchanged from March forecast.
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.
In its inflation report issued in May, Romania's central bank, BNR lowered its 2017 inflation forecast to 1.6% from previously projected 1.7%, adding that a downward revision of inflation projection could delay a hike of its key rate planned for 2018.
Regarding monetary policy, Raiffeisen said it expects BNR to keep its monetary policy rate unchanged at 1.75% in 2017.
"We see a first key rate hike to take place only in March 2018. However, we think that the NBR will raise the interest rate on the deposit facility already in the second half of this year, which should then result in an increase of ROBOR rates," Raiffeisen analysts pointed out.
On May 5, BNR maintained its monetary policy rate at a record low 1.75%. The central bank last changed the key rate in May 2015, when it cut it by 25 basis points.
Raiffeisen also said they expect the yields for lei government securities to increase in the following quarters, supported both by external and by domestic factors.
However, analysts said they expect the risk premium required
by investors to hold lei Government securities to increase due to
enlargement of the public budget deficit at a level above 3.0% of GDP
(1 euro=4.5563 lei)
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