Country Forecast Romania January 2018 Updater

Country Forecast Romania January 2018 Updater

  • January 2018 •
  • Report ID: 3612687 •
  • Format: PDF


  • Following the general election in December 2016 the Social Democratic Party (PSD) and the Alliance of Liberals and Democrats (ALDE) formed a govern-ment 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 significant.
  • 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.
  • In 2017 we estimate a budget deficit of 3% of GDP on a cash and on an ESA 2010 basis. In 2018-20 we expect a widening of the deficit to an average of 3.5% on a cash basis. We expect mild fiscal consolidation in 2021-22.
  • The National Bank of Romania (NBR, the central bank) is likely to raise its policy rate in the first quarter of 2018 to counter economic overheating.
  • Following estimated real GDP growth of 7.2% in 2017, we expect growth to average 4.2% per year in 2018-22. Real GDP growth will progressively slow, to 3.5% in 2020, as global growth moderates. In 2021-22 growth will gain momentum, reaching an average of 4.1%.
  • We estimate a rise to average annual inflation of 1.3% (3.3% 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 annual inflation of 3.5% in 2018-22.
  • We forecast average annual current-account deficits equivalent to 2.8% of GDP in 2018-22, following a deficit of 2.9% of GDP in 2016.


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