Country Report Romania September 2017

Country Report Romania September 2017

  • September 2017 •
  • Report ID: 2556837 •
  • Format: PDF

Outlook for 2017-21



  • The current left-of-centre coalition government is likely to serve a full term, barring any further serious incidents (such as the 2015 Colectiv nightclub fire). Political risks remain at moderate levels.
  • Demonstrations since early 2017 against the government's attempts to weaken anti-corruption efforts have revealed the level of public dissatisfaction with the political class and support for the fight against corruption.
  • Tensions are likely between the Social Democratic Party (PSD)-Alliance of Liberals and Democrats (ALDE) government on one side and an increasingly independent judiciary and the president, Klaus Iohannis, on the other.
  • The PSD will pursue an "anti-austerity" programme involving continued tax cuts as well as increases in public-sector wages and welfare benefits. These measures will support robust private consumption growth.
  • The Economist Intelligence Unit forecasts a budget deficit of 3.6% of GDP on the ESA 2010 measure in 2017, which would be in breach of EU fiscal rules. We expect mild fiscal consolidation in 2019-21.
  • The National Bank of Romania (NBR, the central bank) is likely to tighten policy in the second quarter of 2018 to counter economic overheating.
  • Following real GDP growth of 4.8% in 2016, we expect growth to average 4.3% per year in 2017-21, largely driven by private consumption.
  • We forecast average annual current-account deficits equivalent to 3% of GDP in 2017-21, following a deficit of 2.3% of GDP in 2016.


Review



  • On August 30th the Ministry of Justice published a draft law amending the justice laws following demands for greater clarity from the European Commission. The amendments contain measures that would arguably significantly weaken the independence of the judiciary if they became law.
  • In the second quarter of 2017 real GDP grew by 5.9% year on year following growth of 5.7% in the first quarter.
  • On August 4th the government published a draft ordinance requiring businesses to run a separate bank account dedicated to payments and receipts of value-added tax (VAT). Initially, it was intended to become compulsory on October 1st 2017; however, it has been postponed until January 1st 2018.
  • On July 27th the Ministry of Public Finance issued a press statement, according to which total social security payments will be cut from 39.25% to 35% of the gross wage, and the flat-rate income tax will be cut from 16% to 10%, with no income tax liability for incomes below Lei2,000 (US$394) a month.


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