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2019/12/06 / Erste Group Research

Romania Outlook | All about budget deficit


The high budget deficit, rigid public expenditures and upcoming elections in 2020 are a risky combination for Romania's public finances. So far, the government has been reluctant to present a set of tangible fiscal measures for bringing the budget deficit under control.

The current account deficit showed signs of leveling off in 2H19, but at 5% of GDP it remains one of the highest in the EU, amplifying Romania's vulnerability to a potential external shock. Investor confidence deteriorated at the end of 2019. Long-term bonds were sold off and the leu weakened.

Economic growth will slow down to 3.5% in 2020, from 4% in 2019, due to external headwinds and fading effects of loose fiscal and wage policies. The inflation rate is seen close to the upper limit of the NBR's target (3.5%). As long as inflationary pressures are still around and the fiscal policy does not become prudent, the NBR will refrain from easing the monetary policy. The monetary policy rate is thus seen flat at 2.5% throughout 2020. The leu could depreciate by 2-3% per year in nominal terms in 2020-21.


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General information

AuthorErste Group Research
Date2019/12/06
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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