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UPDATE 1 - Romania's Q1 GDP growth beats analyst expectations

UPDATE 1 - Romania's Q1 GDP growth beats analyst expectations Albanian finance ministry/All rights reserved.

BUCHAREST (Romania), May 16 (SeeNews) - The pace of Romania's economic growth in the first quarter of the year has exceeded expectations, analysts said on Tuesday.

Romania's annual economic growth accelerated to 5.7% in the first quarter of 2017 from 4.8% the quarter before, according to flash data of the country's statistical board, INS. Quarter-on-quarter, the Romanian economy expanded by an adjusted 1.7% in January-March, speeding from a 1.5% growth rate in the preceding three-month period.

The figures have exceeded by far ING Bank's consensus which stood at 4.5% on the year and 1.0% on the quarter.

"When the detailed breakdown is available in about three weeks, we believe it will show that private consumption remained the major driver, but it is likely that external demand also helped out. We also believe that public sector capex might have received a boost, following the accelerated budget spending at the end of 2016," ING Bank said in a daily brief on Romania.

However, such a consumption-driven growth model should start having negative side-effects on inflation and/or the current account sooner or later.

"Fears of fiscal revenue underperformance on the government’s optimistic GDP growth assumption of 5.2% for 2017, versus our own call at 4.1%, should subside," ING Bank analysts opined.

Raiffeisen Bank analysts also pointed out that the flash estimate has exceeded their expectations of 4.3% annual growth and 1.0% quarter on quarter growth.

"The significant advance in the first quarter should have been consumption driven, but investments are also likely to have had a positive contribution," Raiffeisen Bank analysts said in a daily market report. They added that the economic growth in the first quarter suggests that GDP advance in 2017 could outpace their current forecast of 4.2%.

On a seasonally adjusted annual comparison basis, Romania's GDP growth accelerated to 5.6%, compared to 5% in the previous quarter.

INS said it has revised the Q1 2016 results to 1.1% quarterly growth rate, down from 1.3%. Also, quarterly growth rate in the third quarter of 2016 has been revised to 0.7% from 0.5%, while for the fourth quarter of 2016, the growth rate has been revised to 1.5% from 1.4%. Results for the second quarter of 2016 remain unchanged.

In 2016, Romania's economy expanded by 4.8%.

Romania's 2017 budget is built on projections of 5.2% economic growth and sets deficit at 2.99% of GDP, a target that many find too ambitious.

On Friday, the European Commission lowered its projection for Romania’s economic expansion in 2017 to a real 4.3% from 4.4% forecast in February due to the fiscal easing measures of the social democratic government.

Earlier in May, the European Bank for Reconstruction and Development (EBRD) increased its forecast for Romania's economic growth to 4% in 2017 but warned that the government may miss its budget deficit target.

In April, the International Monetary Fund (IMF) said that Romania's real GDP growth is projected to reach 4.2% in 2017 before it decelerates to 3.4% in 2018.

(1 euro=4.5499 lei)

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