UniCredit cuts Romania's 2024 GDP growth f'cast to 2.7%

This year's main growth drivers of Romania's gross domestic product (GDP) will be a loose fiscal policy, fast real-income growth, investment in infrastructure and stronger foreign demand in the second half of the year, UniCredit said in the latest edition of its CEE Quarterly report released on Wednesday.

UniCredit also revised its forecast for Romania's GDP growth in 2025 to 1.9% from 1.6% in January, as private consumption could grow by just 1.3% due to a raft of tax increases that would follow this year's elections.

Consumers are likely to keep spending freely this year due to a lack of major tax hikes on the horizon. This is good news for the construction industry, which will also benefit from easier access to loans and increased funding from the European Union, the lender said.

The government's lack of action on spending will likely keep the trade deficit at above 6% of GDP in 2024. This gap will be filled by foreign investment, EU funds, and government borrowing from outside Romania. As a result, the country's foreign exchange reserves are expected to keep rising.

Inflation is unlikely to reach the government's target range in 2024 or 2025 and is expected to stay elevated at around 5.6% in both years. However, a decrease in domestic spending could bring core inflation, which excludes tax changes, within the target range of 1.5% to 3.5% by spring of 2025, the bank said.

Romania's central bank is expected to start lowering its key rate, currently at 7%, in May, bringing it down to 6% by the end of the year. This will make it easier and cheaper to borrow money, continuing the trend already happening due to the bank's looser lending policies.

(1 euro=4.97127 lei)