While EU funds are anticipated to bolster public investments in Romania, private consumption is anticipated to play a more supportive role in the country's economic trajectory. In ING's latest assessment of Romania's economic landscape, they emphasise the imperative need for fiscal adjustments and the persistent challenge of inflation.
Economic growth
Romania's GDP growth remains steady but falls short of its potential. In 2023, the GDP expanded by 2.1%, and they maintain our projection of a 2.8% expansion for 2024. Notably, private consumption is on an upward trajectory, driven by robust wage growth, particularly in the public sector.
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Inflation and fiscal concerns
Although inflation is expected to decrease, it remains stubbornly high. ING anticipates it to linger outside the National Bank's target range of 1.5%-3.5% over the next couple of years. Meanwhile, the budget deficit hit an all-time high of 1.7% of GDP in February 2024, raising concerns about fiscal discipline. While they maintain their full-year deficit estimate of -5.5% of GDP, the risks lean towards an upward revision.
Growth drivers and challenges
Despite challenges, Romania's economic growth is buoyed by various factors. Strong private consumption, driven by wage growth, and continued EU-funded projects are expected to sustain momentum. However, the performance of the construction sector, particularly civil engineering, remains crucial, with EU infrastructure projects playing a pivotal role. Additionally, while improvements in the balance of payments are observed, challenges persist, particularly in managing import pressures and maintaining a stable trade balance.
Retail sales
Retail sales are anticipated to accelerate, supported by consecutive years of robust real wage growth. However, concerns linger about the sustainability of this growth amidst inflationary pressures. Meanwhile, the services sector, particularly engineering services, shows promise, but challenges persist, especially in industries sensitive to economic cycles.
More information:
ING
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