Loading page...

Romanian Business News - ACTMedia :: Services|About us|Contact|RSS RSS


Six messages sent to government by Isarescu: Don’t stimulate consumption, make reforms


Stop stimulating consumption through fiscal measures, make structural reforms needed by economy. The Romanians’ dropping confidence in economy reduces the competitiveness of Romanian products, pay attention to deficit and inflation pressures! These are messages sent to the government on Wednesday by BNR experts by means of the Report on inflation of August 2018.

Message no.1: Stop stimulating demand! It will go to import consumption!

“A balance should be maintained between the set of fiscal measures and incomes with the role of stimulating aggregate demand and those of increasing the productive capacity of the economy. Thus the reorientation of excess demand could be prevented, both from the private and public sectors, towards the import of goods and services, with obvious consequences on external imbalances,” shows the Report on inflation, published by BNR on Wednesday.

“If we want higher economic growth we must act on investments and productivity. We want higher economic growth, we must stimulate economic potential, not just demand. If we stimulate only demand and it is over potential, there could be only two effects: 1. We create jobs abroad, that is we import more to cover excess demand and this is not to be wished for. Demand stimulation should be correlated with economic potential, so that economy could produce what is in demand. Or we create inflation and this is not to be wished for,” the governor explained on Wednesday.

Message no.2: Make reforms needed by economy!

The consistent implementation of a balanced mix of macroeconomic policies, in parallel with the continuation and deepening of structural reforms in economy, with a view to ensuring a sustainable economic growth.

Message no.3: Romanians’ confidence deteriorates on background of fiscal changes

“The consumers’ confidence continued to deteriorate, on the background of uncertainties about the impact made by fiscal changes operated since the beginning of 2018 on net incomes, as well as the economic situation in general. In this context, categories of products which underwent o visible attenuation of demand were those with high sensitivity to changes in purchase power and in the people’ s feeling.”

Message no.4: We witness deterioration of competitiveness through local product prices

“Exports of goods and services are expected to continue their advance, following the 3.3% increase in quarter I, but will know an attenuation of rhythm compared to previous years. On one hand, the advance will be backed by favorable evolutions of the economic activity of main commercial partners, and by sales of sectors integrated in international VAT chains (such as manufacture of transport means and connected branches). On the other hand, the deceleration of annual dynamic has in view the deterioration of competitiveness of local products through price, in conditions of alert increase of unitary costs of labour force last year, whose evolution will reflect on production costs and of final prices. A series of structural economic characteristics, such as lack of or low quality of infrastructure or the structure of VAT obtained in production processes act in the sense of attenuating the increase of exports of goods and services, in the context of low innovation level,” the Report shows.

Message no.5: Adopting compensatory fiscal measures to maintain budget deficit within targets proposed by authorities will generate risks in annual inflation rate

“Another risk source, considered balanced, refers to the evolution of fiscal policy and incomes. Considering recent evolutions, potential reconfigurations of public budget coordinates in the context of budget sub-performances remain a preoccupation. From this perspective, adopting compensatory fiscal measures to maintain budget deficit within targets proposed by authorities, especially when it has in view increasing current expenses, to the detriment of capital ones, could generate risks about the prognosis of the annual inflation rate. In the present macroeconomic context, the consistent implementation of a balanced mixture of macroeconomic policies, essential from the perspective of preventing less desirable effects in economy is needed.”

Message no.6: Inflation pressures will continue until next year

“In quarterly terms, the GDP deviation is an indicator of future inflation pressures in economy (a GDP deviation indicates inflation pressures, while a negative GDP deviation indicates disinflation pressure),and will be placed on a moderate growing trajectory, starting with the second quarter, 2018, while in the third quarter this tendency will reverse,”shows the Report on inflation, presented by the governor on Wednesday.