Romania's economy to contract 5% in 2020, grow 3% in 2021 - EBRD

After robust growth of 4.1% in 2019, Romania is experiencing a recession in 2020, mainly due to lower consumption and a drop in exports, the EBRD said in its latest Regional Economic Prospects report.

The EBRD had predicted a 4% contraction of Romania's GDP in 2020 and 4% growth for 2021 in the previous edition of the report issued in May.

A domestic lockdown and state of emergency were introduced in mid-March 2020, lasting until mid-May and severely affecting travel, economic activity and consumer and business sentiment, the bank said in the October edition of the report.

As the lockdown heavily affected private consumption, retail sales dropped by almost one fifth in April on a year-on-year basis, though some recovery took place in the following months, the bank noted. Industrial production collapsed in April by almost 40% year-on-year, causing exports of goods to drop.

GDP fell by 3.9% year-on-year in the first half of 2020, with private consumption down 5% and exports falling by 15%. Also, the unemployment rate rose to 5.4% in July 2020 from 3.7% in January 2020, with further job losses likely in the coming months as government support schemes are phased out, the EBRD said.

According to the EBRD, Romania entered the Covid-19 crisis with a significant fiscal deficit of 4.3% of GDP in 2019.

"The combination of a shrinking output and government revenues, a fiscal stimulus programme amounting to around 4-5% of GDP, and another increase in pensions in September 2020 (on top of one in 2019), is expected to raise the fiscal deficit in 2020 to an estimated 8.6% of GDP, as per the August 2020 revised budget," the EBRD warned.

According to the bank, economic recovery is contingent on a gradual normalization of economic activity in both Romania and its main economic partners, and a resumption of structural reforms. However, the EBRD stressed, this would be hard to achieve should social distancing remain in place for longer than anticipated.

Romania extended the state of alert introduced due to the coronavirus pandemic by 30 days as from September 15 due to a rise in the number of new infections.

On Wednesday, Romania reported 2,158 new Covid-19 cases in the past 24 hours, the highest daily increase since the beginning of the pandemic, bringing the total count to 127,572.

(1 euro=4.8698 euro)