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Romania's 2020 GDP to contract by 6%, rebound to 4.2% in 2021 - EU Commission

Romania's 2020 GDP to contract by 6%, rebound to 4.2% in 2021 - EU Commission source: SeeNews

BUCHAREST (Romania), May 6 (SeeNews) - Romania’s economy is expected to contract by a real 6% this year and then recover to 4.2% growth in 2021, the European Commission (EC) said on Wednesday.

"At the onset of the COVID-19 crisis Romaniaʼs economy was growing at an annual rate of around 4%, mainly driven by private consumption. However, signs of macro-economic imbalances had already emerged, notably in the form of high and growing current account and fiscal deficits," the EU's executive body said in its Spring 2020 Economic Forecast report.

In its previous forecast for Romania published in February, the Commission said it expected 3.8% gross domestic product (GDP) growth for 2020 and 3.5% advance in 2021.

"Private consumption, which is expected to be significantly affected by lockdown measures in 2020, should increase gradually as these are lifted and contribute positively to growth in 2021," the EC said in the report.

After a very strong performance in 2019, investment is projected to drop significantly in 2020, as businesses react to the very uncertain environment by postponing or cancelling investment projects, the Commission said.

Public investment activity, meanwhile, is projected to be subdued. In 2021, investment is expected to recover only partially amid persistent uncertainty. 

From a record low of 3.9% in 2019, the unemployment rate is projected to increase to 6.5% in 2020 as some firms will inevitably close as a result of the COVID-19 crisis, although policy measures are expected to limit job losses, the report showed.

Inflation is projected to fall to 2.5% in 2020 mainly due to the sharp fall in oil prices. Core inflation is projected to ease somewhat but remain above 3% in 2020 and 2021.

The general government deficit is forecast to increase to around 9% of GDP in 2020. The preexisting expansionary trend largely driven by pension increases is set to be reinforced by the impact of the COVID-19 crisis. 

The general government deficit is set to further increase in 2021 to around 11.5% of GDP under a no-policy-change assumption, despite a projected recovery in tax revenues and phasing out of pandemic-relief related expenditures, the Commisison also said.

Beyond the uncertainty that affects all countries related to the evolution of the health crisis, global growth and international trade, for Romania it will be important how the authorities balance the need for support measures with concerns about the medium-term trajectory of public finances which pre-dated the COVID-19 crisis, the EU's executive body stressed.

(1 euro = 4.8258 lei)