BUCHAREST (Romania), October 9 (SeeNews) - Romania's economic growth is expected to moderate over the medium term in line with long-term potential, as the available fiscal space shrinks and the labour market increasingly tightens, the World Bank said on Wednesday.
Romania's real gross domestic product growth is seen accelerating from 4.1% in 2018 to 4.2% this year, the World Bank said in an Economic Update for Europe and Central Asia report. The economy is seen slowing down to 3.6% in 2020, and to 3.2% in 2021.
In its previous such report published in April, the World Bank predicted Romania's real gross domestic product growth will slow down to 3.6% this year, 3.3% in 2020, and 3.1% in 2021.
"The fiscal measures promoted in recent years coupled with the political uncertainty in the context of a series of elections will make it unlikely that the government will be able to firmly contain imbalances. In 2019, we expect inflation to stay elevated and the external deficit to continue widening," the World Bank said.
The Romanian government will have difficulties keeping the budget deficit within 3% of GDP over the medium term and the newly promoted pension law and the planned public wage increases will put endemic pressure on the consolidated budget deficit and reduce the available fiscal space for investment, the World Bank warned.
The widening of the fiscal deficit would push public debt to 39.5% of GDP at end-2021, from 36.6% in 2018, but Romania's public debt remains one of the lowest in the EU.
However, strong private consumption aided by the expansionary fiscal policy and continued growth in real wages, partly supported by minimum wage increases, should continue to boost real incomes and lead to further declines in poverty incidence, the report showed.
The uncertainty of fiscal policy coupled with the tightening labour market – amplified by emigration - could generate significant domestic adverse effects on growth and investment, the World Bank noted, adding that renewed efforts are needed to improve labour participation and to tackle the high unemployment among the youth and the low-skilled.
"Over the medium term, the focus of fiscal policy should be rebalanced from boosting consumption towards mobilizing investment, primarily from EU funds, to support a sustainable EU convergence path and social inclusion," the World Bank said.