The projections for economic growth in Romania for 2018 and 2019 were also lifted to 4.1% and 3.6%, respectively, the World Bank said in its Europe and Central Asia Economic Update, October 2017: Migration and Mobility report. Back in June, the bank forecast an economic growth of 3.7% in 2017 and 3.5% in 2018.
The World Bank's estimation for 2017 is slightly below the finance ministry's forecast for 5.6% economic expansion in 2017.
"Growth is expected to remain solid in 2017 and 2018, but there are risks to the outlook, reflecting the deteriorating fiscal position and current account balance," the bank said.
In 2016, Romania's economy expanded by 4.8% year-on-year compared to a revised growth rate of 3.9% in 2015.
Romania's annual economic growth accelerated to 6.1% in the second quarter of 2017, above the initial estimate of 5.9% made in September, statistics office preliminary official data showed.
This growth was led by by private consumption, boosted by the reduction in the standard VAT rate from 20% to 19% in January 2017, and by increases in the minimum and public sector wages and pensions. However, investment growth was timid, reflecting the poor performance of public investment mainly due to the drop in the EU investment funding, the report showed.
The pickup in consumption is expected to widen the current account deficit to 3.1% in 2017, from 2.4%in 2016. Thus, the authorities should consider additional fiscal measures if the budget deficit risks exceeding 3% of GDP in 2017 and 2018, the bank said.
Accumulating fiscal pressures and excess domestic demand limit the space for policy-makers to maneuver in 2017 and beyond, the report also showed.
The World Bank sees Romania's average annual inflation at 2% in 2017 and at 2.5% in 2018. "Inflation is set to rise, reflecting the excess domestic demand and the fading out of the base effect of the tax cuts," the bank said.
Romania's annual inflation rate was 1.8% in September, up from 1.2% in August, according to data from the national statistical board, INS. In its latest inflation report issued in August, Romania's central bank BNR increased its annual inflation forecasts for this year and next, to 1.9% and 3.2%, respectively, from 1.6% and 3.1% projected earlier.
Last week, the International Monetary Fund (IMF) said that Romania's real GDP growth is projected to reach 5.5% in 2017 before it decelerates to 4.4% in 2018.
Earlier in October, Standard & Poor's maintained Romania's rating at BBB-/A-3, with a stable outlook, and said that the country's budget and trade deficits will increase due to the consumption-focused growth.
In August, Fitch Ratings affirmed its projections that Romania will post economic growth of 5.1% this year but also warned of risk of overheating.
