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BUCHAREST (Romania), May 10 (SeeNews) - The European Bank for Reconstruction and Development (EBRD) on Wednesday raised its expectations for Romania's economic growth to 4% in 2017, but warned that the government may not meet its budget deficit target.
In its previous report released in November, the EBRD projected that Romania's gross domestic product (GDP) will grow by 3.7% in 2017.
"Consumption will continue to drive growth in 2017 and 2018, supported by a further increase in minimum and public sector wages, which formed part of the governing PSD’s [Social Democrat Party] election promise. The latter will mean that government spending is likely to remain elevated in 2017, with a risk that the 3% of GDP deficit limit under the fiscal compact will be breached," the EBRD said in its latest Regional Economic Prospects report.
According to the Maastricht treaty signed in 1992, the ratio of the annual general government deficit relative to GDP at market prices must not exceed 3% at the end of the preceding fiscal year.
"Private investment will be boosted by the abolition of the construction tax and historically low cost of funding. Meanwhile, a slight improvement in net exports will be driven by better economic prospects of Romania’s trading partners, though higher domestic consumption will offset some of this. GDP growth of around 4% is expected in 2017, moderating to 3.5% in 2018," the EBRD added.
Romania's 2017 budget is built on projections for 5.2% economic growth and deficit equivalent to 2.99% of GDP.
In 2016, Romania's economy expanded by 4.8% compared to a revised growth rate of 3.9% in 2015, supported by strong domestic demand. The country's consolidated budget showed a deficit equivalent to 2.41% of the projected GDP last year, compared to 1.47% of GDP in 2015, according to finance ministry data.
In 2017, the average growth rate in Southeast Europe (SEE) is expected to rise slightly to 3.1%, from 2.9% in 2016, the EBRD said. In 2018, the bank expects economic growth in the region to stand at 3.0%.
(1 euro=4.5507 lei)