For 2023, the World Bank expects 3.2% growth in Romania, the global lender said in its fall 2022 World Bank Europe and Central Asia Economic Update report published on Tuesday.
The outlook for this year is highly uncertain, the World Bank said, adding that a global slowdown and a possible recession in the main trading partners could also impact Romania’s growth in 2023.
"Growth prospects hinge on several factors, including the new COVID-19 flare-ups, the dynamics of inflation, especially related to energy and food prices, and the severity of the conflict in the region and its impact on the European economy in which Romania is strongly integrated," the World Bank said.
According to the report, Romania’s capacity to absorb the EU funds will be critical to a sustainable, green, and inclusive recovery process, as the sizable investment and reforms under the Resilience and Recovery Facility and other EU-funded programs should partially mitigate the impact of higher interest rates and uncertainty on private investment.
The sizable funds should also alleviate some of the fiscal pressures resulting from the war and heightened energy and food prices. In the bank's view, over the medium term, fiscal deficits will remain elevated and fiscal consolidation efforts remain critical and should address the large structural deficit, which requires reforms to strengthen revenue mobilization and increase spending efficiency.
Poverty in Romania is projected to decline to the pre-crisis level by 2024, but rising food and energy prices and declining remittance incomes could mean a longer recovery process for vulnerable population segments in the coming years. Also, a protracted war in Ukraine may significantly weaken growth and lead to an increase in poverty in the short run, according to the report.
The latest World Bank estimations are more optimistic than those of the Romanian government, which targets 3.5% economic growth in 2022.
The World Bank report shows that growth in Central Europe, which includes Bulgaria, Croatia, Hungary, Poland, and Romania, is forecast to slow to 4.3% in 2022 from 6.2% last year. The deterioration in near-term growth prospects largely reflects the impact of Russia’s cutoff of energy supplies to the EU, as Central Europe economies suffer from the subsequent natural gas price shock and negative spillovers from much weaker activity in the euro area, the report also indicated.
