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2021/09/10 / Erste Group Research

Twin deficits in spotlight with political noise in background

We are heading into an eventful autumn. Political tensions boiled over after ministers from junior government coalition party USR resigned and the party subsequently filed a motion of no confidence. The main government party, PNL, has its congress on September 25, which should clear the political outlook to some extent. We expect the NBR to deliver its first rate hike on November 9 in response to rising inflation, fiscal adjustment below expectations, currency weakness and a narrowing real interest rate differential vs. peers against the backdrop of a divergent external position. All three major rating agencies have scheduled reviews in mid-October, with an improvement in outlook likely to be delayed by political uncertainty.

GDP growth exceeded expectations so far this year as the economy reopened and consumers shrugged off the covid crisis. We see economic growth at 7.4% in 2021 and 4.5% in 2022. Inflationary pressures are building due to domestic increases in energy prices after price deregulation on top of higher imported inflation. The weak twin deficit position vs. peers needs to be addressed to avoid market-driven adjustments. The commitments under the EU Recovery and Resilience Facility could act as a catalyst for long overdue fiscal, administrative, and labor market reforms.

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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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