July 7 (SeeNews) - The European Commissionm (EC) on Tuesday confirmed its forecast for 6% contraction of Romania's economy this year, but lowered its 2021 projection to 4% growth from 4.2% projected in May.
"Due to the lockdown triggered by the COVID-19 pandemic, real GDP growth is forecast to show a sharp drop in the second quarter of the year. Private consumption is expected to decline as a result of restrictions on movement as well as lower incomes," the Commission said in its Summer 2020 Economic Forecast report.
According to the report, uncertainty is set to weigh significantly on investment decisions this year, while construction activity could offer some relief. Also, the reduced economic activity in Romania’s main trading partners is expected to take a significant toll on exports.
After falling sharply in the first half of 2020, economic activity is forecast to gain traction in the second half, as restrictions are gradually lifted, and to pick up further in 2021.
Risks to the growth outlook are tilted to the downside, the EC noted, as a second wave of infections in Romania or one of its main trading partners could delay the economic recovery.
"In addition, an important factor is how the authorities address the concerns on the fiscal trajectory pre-dating the COVID-19 crisis, which if unaddressed may eventually feed into depressed investor confidence, higher financing costs and a lower growth path," the EC also said.
The sharp drop in energy prices, as well as subdued aggregate demand, are set to reduce inflationary pressures in 2020, compensating an expected increase in food prices, following supply chain disruptions and as a result of a drought.
HICP inflation fell from 4% in December to around 1.8% in May 2020, and according to the Commission, is expected to pick up to an average of 2.8% in 2021, supported by a recovery in demand.
(1 euro = 4.8397 lei)