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Erste lifts Romania's 2017 economic growth forecast to 5.5%


Erste Group said it has raised its outlook for Romania's economic growth to 5.5% in 2017 based on strong performance in the first half of the year, but warned it continues to expect a significant slowdown of growth in the second half, seenews.com informs.

In its previous forecast issued in June, Erste said Romania's economy would grow by a real 5.1% in 2017 driven by private consumption before economic expansion slows down to 3.9% in 2018. Household consumption seems to cool off after very strong growth rates in recent quarters and consumer confidence has fallen slowly after hitting an all-time high in the spring, Erste said in a short note on Romania published earlier this week.

"An additional excise tax on car fuels will be introduced in September, along with other expenditure side measures (like some future limitations for special pensions and a cap on monthly allowance in case of parental leave). While some of these measures will affect only small groups of persons, the importance of the message sent by the government should not be overlooked," the bank said.

Therefore, the “growth model” driven by fiscal loosening has short legs looking ahead and the growth drivers should come from elsewhere, according to Erste. "The pickup in EU funded investments in the second half of 2017 is uncertain and local budgetary resources available for public investments are becoming more limited," Erste noted.

Trade deficit should also continue to prove a headwind for further expansion of Romania's gross domestic product (GDP), as imports of consumer goods are rising fast at present, while exports are not keeping the same pace. Romania's annual economic growth accelerated to 5.9% in the second quarter from 5.7% the quarter before, non-adjusted flash data of the country's statistical board, INS, indicated on Wednesday.  In 2016, Romania's economy expanded by 4.8%. v