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2020/04/02 / Erste Group Research

Navigating storm with one engine gone

Years of generous fiscal and income policies and the absence or even rollback of structural reforms has left the Romanian economy heavily exposed to the coronavirus-driven twin supply-demand shock. Credit rating constraints are likely to lead to some fiscal consolidation in 2021. Economic growth is likely to sharply shrink by -4.7% in 2020, from +4.1% in 2019, with risks tilted to the downside. With limited fiscal headroom to accommodate the external shock, monetary policy came to the rescue. Provided that the shock is short-lived, the central bank could get over it. Once the lockdown period is over, both fiscal and monetary targeted measures are needed to swiftly recover the economic losses.

Inflation is foreseen as lower, at 2.8%, in December 2020, due to the demand shock and falling oil price. The current account deficit could adjust to -3.5% of GDP in 2020, from -4.7% in 2019. In an extraordinary step, the central bank announced the acquisition of ROMGBs in the secondary market, cut the key rate and Lombard rate, eased liquidity conditions and adjusted regulatory rules. Reductions in FX and RON RRR could follow. The leu should continue to weaken gradually and the NBR will retain a discreet presence in the market.

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General information

AuthorErste Group Research
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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