March 31 (SeeNews) - Romania's gross domestic product (GDP) is expected to grow by 4.3% in 2021, the World Bank said, improving its January forecast by 0.8 percentage points.
Romania's economy is expected to improve in 2021 on the back of strengthened economic activity in the second half of the year, the World Bank said in the spring edition of its Europe and Central Asia Economic Update report published on Tuesday.
The strength of the recovery will depend on the success of the vaccine rollout and the policy response to the health crisis, as well as on developments in the EU, the global lender added. Also, the impact of the stimulus pursued at the EU level will play a critical role in the recovery given limited fiscal space.
Romania's central bank will continue its quantitative easing policy, further supporting the recovery but as growth recovers, inflationary and current account deficit pressures are expected to reemerge, requiring an appropriate policy response, according to the report.
"A substantial reduction of the fiscal deficit in 2021 is improbable, as the government will have to support the economic recovery process. Over the medium term, the deficit will follow a downward trajectory but is likely to remain above 3% throughout the projection period," the World Bank said.
According to its estimations, the widening fiscal deficit would push public debt to 62.2% in 2023, from 37.3% in 2019, but Romania's public debt remains one of the lowest in the EU.
During 2021, poverty is projected to remain elevated in Romania due to the triple-hit in incomes facing poorer segments of the population, in the form of the persistent pandemic, the poor agricultural year, and declining remittance incomes.
The key challenge for the Romanian government in the short term is to contain the COVID-19 crisis and limit its health, economic and social consequences, the World Bank said, adding that additional challenges stem from Romania’s historically low EU fund absorption rates, raising questions about the country’s capacity to take advantage of the new recovery funds.
Inflation is expected to reach 3% in 2021 and then accelerate to 3.2% in 2022.
The World Bank estimates that Romania's economic output declined by 3.9% in 2020, less than the 5% contraction forecast in January.
For 2022, the World Bank expects Romania's GDP to expand by 4.1%.
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