January 7 (SeeNews) - The World Bank said on Thursday it raised Romania's economic growth forecast for 2017 to 4.1% from 3.5%, while keeping its projections for the rate at which the country's economy will expand this year at 3.9%.
"Economic activity and trade balances of the sub-region will benefit from the recovery in the Euro Area, where output is projected to expand by an average of 1.7% in 2016-2017 with the support of accommodative ECB policies," the World Bank said in its bi-annual World Economic Prospects report. "Some countries also receive direct support for capital spending from European Structural and Investment Funds."
The World Bank's latest forecast for Romania's GDP growth in 2017 is in line with the European Commission indicators.
For 2016 the International Monetary Fund forecast 3.9% economic growth in Romania, versus 4% projected by the Romanian government.
According to the World Bank, one of the main local risk factors for Romania's economy growth in 2016 and 2017 are the growth shocks in Turkey, which have smaller, and mostly local, repercussions for countries in the neighborhood. For example, a one percentage point decline in growth in Turkey reduces growth in other Europe and Central Asia countries by an average of 0.1 percentage point over two years, but for Bulgaria and Romania, the impact is greater.
"The estimated impact is larger in Bulgaria and Romania where a 1 percentage point decline in growth in Turkey reduces growth by 0.5 and 0.2 percentage point, respectively, over two years," the World Bank said in the report.
Also, a shock related to tightened monetary policy in the US could lead to less favorable financing conditions for countries in the region, according to the World Bank. "A sudden readjustment of expectations about the future trajectory of U.S. interest rates could combine with domestic fragilities and policy uncertainties in some developing countries to generate financial stress".
Moreover, the possible escalations of geopolitic tensions are a danger to the area's economic stability, World Bank concluded.