Country Forecast Romania November 2017 Updater

Country Forecast Romania November 2017 Updater

  • November 2017 •
  • Report ID: 359030 •
  • 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. Political risks will be considerable.
  • 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 also 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.
  • In 2017 we estimate a budget deficit of 3.3% of GDP on a cash basis (3.6% of GDP on the ESA 2010 measure), which would be in breach of EU fiscal rules. In 2018-22 we expect an average deficit of 3.1% on a cash basis. We expect mild fiscal consolidation in 2020-22.
  • The National Bank of Romania (NBR, the central bank) is likely to tighten monetary 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 4.1% per year in 2017-22, largely driven by private consumption. GDP growth will progressively slow down, touching 2.9% in 2020 as global growth moderates. In 2021-22 growth will gain momentum, reaching an average of 3.6%.
  • We estimate a rise to average annual inflation of 1.1% (2% 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. We expect average inflation of 3.5% in 2018-22.
  • We forecast average annual current-account deficits equivalent to 3.6% of GDP in 2017-22, following a deficit of 2.3% of GDP in 2016.






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