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EBRD worsens prognoses about Romania's economic evolution in 2020 and 2021
EBRD has worsened its estimates on Romania's economic evolution in 2020 and 2021, as a result of the crisis triggered by the coronavirus pandemic, according to a report released on Thursday by the international financial institution.
According to the latest EBRD provisions, Romania's economy will register this year a 5% drop, compared to a 4% decline foreseen in May. For 2121, EBRD is expecting a 3% expansion of Romania's GDP, compared to an advance of 4% provisioned in May.Romania will reach again the per capita GDP level of 2019 in quarter 2, 2022, EBRD considers, foreseeing that in semester 1 of 2020, Romania's economy contracted by 3.9%.
After a robust increase of 4.1% of GDP in 2019, Romania faces recession in 2020. The key transmission channels are lower consumption and export decline. The emergency state introduced by mid March and isolation measures meant to stop the spreading of coronavirus pandemic lasted until mid May, seriously affecting travels, economic activity and the consumers' and companies' confidence, the report shows.
Isolation measures had a significant measure on private consumption: retail sales dropped by a fifth in April, compared to the same period of 2019, although in the following months there was a slight recovery. Industrial output crashed in April, dropping by 40% compared to the same period of 2019, provoking the decline of export of goods, EBRD considers.
In the first quarter of 2020, Romania's economy contracted by 3.9%, private consumption dropped by 5% and exports by 15%. The unemployment rate went up to 5.4% in July (from 3.7% in January), the loss of new jobs being possible in the next months, since support government schemes will be stopped. In June, the annual inflation rate went up to 2.2%, in line with the BNR target of 2.5% plus/minus 1%.
Romania went into a crisis triggered by the pandemic with a significant fiscal deficit (4.3% of GDP in 2019). The combination between output drop and government incomes, a fiscal stimulation program of 4-5% of GDP and other pension increases in September 2020 (besides the ones of 2019) will deepen fiscal deficit in 2020 at an estimated level of 8.6% of GDP, according to the reviewed budget draft. BNR reduced by three times the monetary policy interest rate to 1.5%, it dropped the interest rate for deposit facility to 1% per year and the interest rate of credit facility (Lombard) to 2% per year, according to the report of the international financial institution.
Romania's facility will register a decline of 5% in 2020 and an increase of 3% in 2021. The recovery will depend on the gradual normalization of economic activity both in Romania and in its main economic partners, and resuming structural reforms. However, they will be difficult to fulfill if social distancing remains in force for longer time than anticipated, EBRD warns.
In June and July EBRD made a study among 1,652 small companies in 15 economies in areas where the creditor is present (Kazakhstan, Kirghistan, Mongolia, Tajikistan, Turkmenistan, Uzbekistan, Bulgaria, Croatia, Romania, Egypt, Morocco, Jordan, Lebanon, Tunisia, the West Bank and Gaza strip), to evaluate preliminary effects of the pandemic on small companies.
Expectations on obtaining government support, under the form of grants, subsidized loans or salaries varied significantly in the area. While more than half of small companies from Bulgaria, Croatia, Romania, Morocco and Mongolia received or expected to receive government assistance, less than 20% of companies thought they could not rely on government support in the West Bank and Gaza Strip, Kirghistan, Tajikistan, Uzbekistan and Lebanon. Higher government support (expected or received) is associated to a more optimistic opinion about prospects of relaunch, the report shows.
EBRD was set up in 1991 to invest in former communist states and held them make the transition to the market economy. In past years, EBRD started focusing on Northern Africa and the Middle East.
EBRD is Romania's main institutional investor with investments of over 8.6 billion euros. In 2019, EBRD invested and financed 22 projects in various sectors of Romanian economy of an overall value of over 372 million euros.