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World Bank: Romania's economic growth at 0.3pct in 2020
The World Bank has revised significantly its estimates of the Romanian economy's advance this year, down to 0.3 percent from 3.8 percent, as projected three months ago, but growth would gradually bounce back in the second half of 2020 and further accelerate in 2021 to 4.4 percent, according to the World Bank's economic update spring 2020.
"The negative impact of the COVID-19 pandemic on the economy is anticipated to be substantial, at least in the first half of 2020. However, the risk of a recession in 2020 is substantial and growing as COVID-19 brings to a halt large segments of the European economy and disruptions to global supply chains and trade patterns."
The World Bank says that to address the consequences of COVID-19, the fiscal deficit is expected to widen to around 5.5 percent of GDP in 2020, up from a planned deficit of 3.6 percent. Additional deficit pressure comes from the new pension law which stipulates a 40 percent increase in pensions from September 2020. "Once the impacts of COVID-19 dissipate, we would expect the deficit to follow a downward adjustment of at least 0.5 percent of GDP per year, in compliance with the Excessive Deficit Procedure of the EU."
Regarding the challenges that Romania faces, the World Bank is of the opinion that in the short run, the key challenge is to contain the COVID-19 crisis and limit its health and economic consequences. "A longer and deeper than anticipated crisis would affect growth prospects and cause significant damage to companies and jobs, while raising unemployment and poverty," says the World Bank.
In the medium term, the focus of fiscal policy should gradually be rebalanced towards mobilizing investment, primarily from EU funds to support a sustainable EU convergence path and social inclusion. Reforms should aim to improve the effectiveness of public administration, the accountability and efficiency of SOEs, and regulatory predictability, as well as to increase human capital in order to increase the economy's growth potential and help address persistent large social and spatial divides.
At the regional level, World Bank's updated economic projections for spring 2020 emphasises that during these difficult times, it is important for policy makers to act decisively to save lives and invest in their public health systems; but also minimise the economic cost by strengthening the safety net for the most vulnerable; supporting the private sector through short-term credit, tax breaks, or subsidies; and being prepared to lower interest rates and inject liquidity to restore financial stability and boost confidence.
Scenarios suggest regional growth will fall into a recession in 2020, contracting between -4.4 to -2.8 percent, held back by the coronavirus pandemic, and rebound subsequently to roughly 5.6 to 6.1 percent in 2021 as policy measures are introduced, global commodity prices gradually recover and trade strengthens.
The World Bank Group is said to be acting quickly to step up support as countries respond to the COVID-19 crisis and face a wide range of consequences, including the risk of global recession.
With approval from its board, the Bank Group is immediately launching emergency support through operations around the world. Given the unprecedented challenges that COVID-19 poses, the Bank Group expects to deploy up to 160 billion US dollars over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery. (Read more on: https://openknowledge.worldbank.org/bitstream/handle/10986/33476/9781464815645.pdf)