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2019/09/09 / Erste Group Research

Slower growth on horizon


Pressure on the budget deficit is mounting and, with new rounds of increases in public wages and pensions scheduled for 2020, it is difficult for Romania to avoid some form of fiscal consolidation in future. In the absence of an external shock and with regular parliamentary elections at the end of 2020, we think that there is a good probability that the difficult job of bringing public finances on to a more sustainable path will begin in 2021. Until then, the budget deficit will widen, likely reaching 4% in 2020 (with a 40% increase in pensions in September) and the C/A deficit will be high.

Economic growth is projected to slow down to 3.8% in 2020, from 4.5% in 2019, due to external headwinds and little chance of seeing fiscal policy as loose as in previous years, except for the implementation of the new pensions law. The inflation rate remained stubbornly close to 4% in 2019 and core inflation was also on the rise towards 3.3% in summer. In 2020, inflation could remain close to the upper limit of the NBR's target. Monetary policy rate is seen flat at 2.5% in the coming quarters.


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General information

AuthorErste Group Research
Date2019/09/09
Languageen
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusRomania
Currency in focusRomanian Leu
Sector in focus-
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