Country Forecast Romania September 2017 Updater

Country Forecast Romania September 2017 Updater

  • September 2017 •
  • Report ID: 3284917 •
  • Format: PDF


  • Following the general election in December 2016 the Social Democratic Party (PSD) and the Alliance of Liberals and Democrats (ALDE) formed a government coalition. Together they hold 51% of seats in the Chamber of Deputies (the lower house of parliament) and 56% in the Senate (the upper house).
  • The Economist Intelligence Unit expects the government to remain in power until the next general election, scheduled for late 2020, given the majority that the PSD-ALDE coalition commands in both houses of parliament and the fragmentation of the opposition parties.
  • Personal rivalries in the upper echelons of the PSD and tensions between the PSD and its junior coalition partner could intensify and result in the government losing its majority.
  • Tensions are likely between the PSD-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.
  • We forecast 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 a rise to average annual inflation of 1.2% (1.9% year-end) in 2017 as the other value-added tax (VAT) cuts move into the base period and as global food and energy prices recover. Energy price deregulation and strong wage growth supported by a loose fiscal policy present upside risks to our forecast for annual average inflation of 3% in 2017-21.
  • 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.


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