Romania 's economy to lose steam in 2020-2021 - Banca Transilvania

However, the convergence toward the EU average would continue in the medium term, as Romania's GDP continues to grow at a faster pace compared with the EU, Banca Transilvania analysts said in a presentation on challenges for the country at the end of the post-crisis cycle.

Romania's GDP increased by an annual 4.1% in 2018, slowing down from 7% growth in 2017, due to deceleration of domestic demand and deterioration of net foreign demand, the bank said.

GDP expanded by 4.7% year-on-year during January-June 2019, driven mainly by domestic demand and supported by the expansionary policy mix.

The main risks to Romania's economic growth are related to the global and European macro-financial climate, with impact for the capital flows directed to the emerging markets, the economic policy mix and the public tensions in the country as well as the regional geopolitical climate.

The bank analysts also noted that the main strategic investors are expected to consolidate their presence in Romania, while the levels of the deficits and the dependence on foreign financing are low compared to the pre-crisis period.

Several policy mix uncertainties such as the discontinuity of reforms, the fragile stance of the public finance and the increase of state intervention in the economy were balanced by the excess liquidity.

Analysts also said that they see inflation gradually converging towards the central bank's target of 2.5%, with average values of 4% in 2019, 3.1% in 2020 and 3.4% in 2021.

Inflationary pressures will remain high in the short run, given the labor market tensions and the depreciation of the leu, they added.

The central bank is expected to tighten control over money market liquidity in the short run, the analysts said.

Romania's consumer prices rose by 3.9% year-on-year in August, compared to an increase of 4.1% in the previous month, the national statistical office said last week.

On August 8, Romania's central bank said it is maintaining its 2019 inflation forecast at 4.2%, while increasing its projection for 2020 to 3.4% from 3.3% predicted in May. On August 5, the central bank maintained its monetary policy rate at 2.50%.

(1 euro= 4.7432 lei)