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2020/03/18 / Erste Group Research

Journey from exuberance to prudence


After years of exuberant fiscal and income policies, Romania is facing a difficult but unavoidable transition to a more prudent budgetary framework. Economic growth is likely to decelerate to +1.8% in 2020, from +4.1% in 2019. The local economy is being hit by a twin supply-demand shock related to the rapid spread of the coronavirus in Europe in March. Unlike most EU countries, Romania has very limited fiscal headroom to accommodate the external shock. The elephant in the room is the 40% public pension rise in September 2020, with large medium-term impact in a ‘no policy change scenario’.

Slower economic growth leads to an adjustment in the current account deficit to around -4.2% of GDP in 2020, from -4.7% in 2019. The NBR could ease liquidity conditions and adjust regulatory requirements for lending to allow banks to support troubled customers. NBR rate cuts are not a primary option because the central bank likes to have flexibility if the currency comes under weakening pressure. The leu should continue to weaken gradually and the NBR is likely retain a discreet presence in the market.


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General information

AuthorErste Group Research
Date2020/03/18
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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