Country Report Romania

Outlook for 2008-09

• The results of the June 1st local elections, which will have a bearing on the parliamentary poll in late 2008 or early 2009 (the date has yet to be agreed), proved better than expected for the ruling National Liberal Party (NLP) and strengthened its position ahead of the national poll.
• The opposition Democratic Liberal Party (DLP) and the Social Democratic Party (SDP) both won 28% of the vote, which was encouraging for the SDP, but disappointing for the DLP.
• The results make an alliance between the SDP and NLP more likely after the parliamentary election, although the DLP will try to thwart this.
• The timing of the parliamentary election has yet to be settled, with the choice likely to be between November 2008 and March 2009.
• The annual consolidated budget deficit could exceed 3% of GDP in 2008, despite a downward revision to the budget in March, as government spending rises steeply in an election year.
• Strong consumption and investment expansion will result in real GDP growth of 6.6% in 2008, but policy tightening will slow growth to 5% in 2009.
• Inflationary pressures are expected to remain strong throughout 2008, and inflation is forecast to average close to 8% in 2008, before declining to around 4.5% in 2009.
• Lax fiscal and wages policies will fuel domestic demand, resulting in a current-account deficit of around 15% of GDP in 2008.

Monthly review

• The local election results put the DLP and SDP neck and neck, with 28% of the vote each, and the NLP assuming the role of kingmaker, with 20% of the vote.
• Italy's new government has proposed a set of public safety measures aimed at clamping down on foreign migrants who break the law, with Roma from Romania appearing to be the main targets.
• The IMF has issued strong warnings about the danger of the government's pro-cyclical fiscal policy and the risk of a budget deficit exceeding 3% of GDP.
• Driven mainly by booming domestic demand, real GDP growth accelerated to 8.2% year on year in the first quarter of 2008, following growth of 6.6% in the fourth quarter of 2007.
• The current-account deficit grew by 10.9% year on year in the first quarter of 2008, a slowdown compared with the year-earlier growth rate of 50%.

SOURCE: Country Report