Romania’s economy is projected to expand by a real 2.2% in 2023, the European Commission said, revising downwards its May forecast for 3.2% growth, according to See News.
The projected deceleration from a real gross domestic product (GDP) growth of 4.6% in 2022 is expected to be driven by high inflation and its constraint on disposable incomes, tight financial conditions and lower external demand, the Commission said in its Autumn 2023 Economic Forecast on Wednesday.
Business sentiment, retail sales and services lost momentum in 2023, while industrial production has further deteriorated. Tight financing conditions coupled with relatively slow disinflation and muted growth in trading partners are curbing Romania’s production output, while robust increases in wages and pensions are seen to stimulate private consumption, which is expected to remain positive this year.
The Commission also lowered its projection for the economic growth of Romania in 2024 to 3.1%, from 3.5% in its previous forecast. In 2025, real GDP growth is projected to further accelerate to 3.4%, as solid increases in real disposable income, a diminishing impact from past interest hikes and resilient public consumption and investment are seen to heat up the economy.
Lower energy prices are expected to trigger a slow decline in headline HICP (Harmonised Index of Consumer Prices) inflation, from about 12% on average in 2022, to 9.8% in 2023. Core inflation is seen to remain sticky and above headline inflation in 2023, while average HICP is set to decelerate to 5.9% and 3.4% in 2024 and 2025, respectively.
The Commission projected a general government deficit of 6.3% in 2023, which is seen to narrow to 5.3% in 2024 and 5.1% in 2025, as fiscal consolidation measures are set to be implemented in January next year.
General government debt is expected to increase from 47.2% of GDP in 2022 to 50.5% in 2025, reflecting ongoing high deficits and slower nominal GDP growth in the following years. Risks to the fiscal outlook are tilted to the downside, while the prospect of lower GDP growth and upside pressures on public wages could result in higher government deficits.
Romania’s economic output is expected to increase by 2% in 2023, finance ministry analysts said earlier this month, lowering their August forecast for 2.8% growth. For 2024, the finance ministry cut its previous growth projection of 4.2% to 3.4%, outlining a marginally more optimistic outlook than the European Commission.