RSS
EC spring economic forecast: Romanian economy is expected to record an advance of 4.3 pct in 2017
The European Commission (EC) has revised downwards its estimates for this year with respect to the rise of the Romanian economy and the public deficit and warns that the uniform pay draft law represents a significant risk to the fiscal targets.
According to the spring economic forecast published on Thursday by the Community Executive, the Romanian economy is expected to record an advance of 4.3 pct in 2017, below projections in the winter forecast which were indicating a 4.4 pct GDP growth.
“Real GDP growth is projected to remain strong, on the back of fiscal easing and wage increases. Unemployment fell significantly in 2016 and is expected to remain at a low level in 2017 and 2018. With a positive output gap, inflation is set to pick up. The budget deficit is projected to continue increasing due to tax cuts and higher public spending. The draft unified wage law poses a significant downward risk to the fiscal forecast,” said the EC.
The Commission estimated that Romania’s general government deficit us set to further deteriorate to 3.5 percent of GDP this year.
The EC added that the draft unified wage law in the public sector “poses a significant risk to the fiscal forecast, with a potential impact on this general government balance of up -2% of GDP in 2018”.
“The 2017 budget contains large increases of public wages and social benefits, including an additional pension increase of 9%, on top of the standard indexation, which is scheduled for July 2017. The deficit is projected to further widen to 3.7% of GDP in 2018.
As a consequence of fiscal easing, Romania’s structural deficit is forecast to increase from around half a percent of GDP in 2015 to around 2½% in 2016 and 4% in 2018. Despite strong GDP growth, the debt-to-GDP ratio is thus projected to rise from 38% of GDP in 2015 to 40.9% in 2018,” added the EC.
"The uniform pay draft law represents a significant risk to tax estimates, with a potential impact of up to 2 pct of the GDP on the government balance in 2018," the EC warns.
In its Spring Forecast released Thursday, the European Commission expects euro area GDP growth of 1.7 percent in 2017 and 1.8 percent in 2018 (1.6 percent and 1.8 percent in the Winter Forecast). GDP growth in the EU as a whole is expected to remain constant at 1.9 percent in both years (1.8 percent in both years in the Winter Forecast), said the EC in a statement.
With regard to inflation, the EC estimates that it will gradually increase and will return to the National Bank of Romania (BNR) target range due to robust domestic demand, new wage increases and new tax incentives. "The average annual inflation rate is projected to return to positive territory in 2017 (1.1 pct) and to continue to grow to 3 pct in 2018", argues the EC.