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Fitch sees Romania's 2018 GDP growth at 3.8%, warns on growing imbalances

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Fitch Ratings said on Monday that Romania's economy will grow by 3.8% this year but warned on growing macro-economic imbalances, seenews.com informs.

"Romania's expansionary fiscal policy looks set to continue following last month's change of prime minister and this will increase macro-economic imbalances," Fitch Ratings said in a commentary published on its website.

Fitch also sees a sizeable structural budget deficit which will make Romania's public finances more vulnerable to shocks.

The agency projects a slowdown in household consumption and tighter monetary policy bringing growth rates down to 3.8% this year and 3.3% in 2019.

At the beginning of February, Romanian finance ministry analysts raised their forecast for the country's 2018 economic growth to 6.1% from 5.5%, based on expectations of more robust performance across sectors than originally projected.  

"Pro-cyclical fiscal policy has boosted growth but increased the risk of the economy overheating. A strong fiscal impulse contributed to robust consumption-driven growth of close to 7% in 2017 - the highest in the EU," Fitch noted.

Romania's annual economic growth accelerated to 8.8% unadjusted in the third quarter of 2017 from 6.1% in the previous quarter, according to preliminary data of the office of national statistics, INS.

"With the economy operating above capacity, further fiscal easing risks increasing macroeconomic imbalances, potentially increasing inflationary pressures, weakening competiveness and widening the current account deficit, which we project to average 3.4% of GDP in 2018-2019, from 2.3% in 2016," the ratings agency added.

Fiscal deficits in 2018 and 2019 are seen exceeding the Maastricht limit, rising to 3.4% and then 3.6% of GDP, respectively.

The Romanian parliament approved Viorica Dancila as prime minister on 29 January, after the resignation of Mihai Tudose earlier in the month following disagreements within the Social Democrat Party (PSD), part of the governing PSD-ALDE coalition.

Dancila's cabinet has presented its governing programme, which includes proposals for further tax cuts and increases to minimum wages and pensions, Fitch noted.

Dancila's swift appointment avoided the immediate prospect of early elections, but has not eliminated political tensions, with public discontent at the government's judicial reform plans and with next year's presidential elections approaching, it added.

On January 18, some 100,000 Romanians in the capital Bucharest and other cities took to the streets against planned changes to the Criminal Code that they see as an attempt to backtrack on the fight against corruption.

Regarding monetary policy, Fitch forecasts that inflationary pressures are developing faster than the central bank has expected and will prompt it to hike the key rate by at least 50 basis points this year. The central bank increased its key policy rate by 25 basis points on 7 February to 2.5% after a 25 basis points increase in January.

On January 12, Fitch affirmed Romania's long-term foreign and local currency issuer default ratings (IDR) at 'BBB-', with stable outlooks and warned that the expansionary fiscal policy has weakened the country's public finances.



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Tuesday, February 13, 2018