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European Comission halves estimates regarding Romanian economic growth in 2022

F. P.
R Street Institute
deficit economie buget

After a robust growth in 2021, the economy of Romania is expected to slow to 2.6% in 2022, as inflation is reducing the available income and the war in Ukraine affects trust in the economy, supply chains and investments, shows the spring economic forecast, published on Monday by the European Commission (EC).

Comparatively, in February, before the invasion of Ukraine, the Community's Executive estimated that Romania's economy would record a growth of 4.2% this year.

Furthermore, the EC revised downwardly the estimates regarding the evolution of Romanian economy in 2023, when the GDP will record an advance of only 3.6%, compared to the 4.5% growth forecast in February.

In parallel, the European Commission significantly increased its inflation prognosis for this year in the case of Romania, from 5.3% it estimated in February, up to 8.9% according to the spring forecast, to go down to 5.3% in 2023.

As regards the general government deficit of Romania, the Community's Executive is expecting it to move upward to 7.5% of the GDP in 2022, from 7.1% in 2021, and to drop slightly in 2023 to 6.3% of the GDP. Furthermore, government debt is expected to reach 50.9% of the GDP in 2022 and 52.6% of the GDP in 2023, mainly due to large deficits.

According to the EC, several factors sit behind the deficit forecast: new spending measures included in the 2022 budget (such as pension and children's allowance increase), increasing interest rates and reducing social contributions. Furthermore, Romania adopted a compensation scheme to face the quickly rising energy prices until March 2023. A new set of economic and social measures was announced on April 11, which according to available information would have a negative budget impact of 0.4% of the GDP.

The government deficit is forecast to reduce to 6.3% of the GDP in 2023, mainly following the cessation of support measures in energy and the effect of automatic stabilizers, as economic growth is expected to accelerate. Nonetheless, the European Commission warns that the risks to the fiscal prognosis point downward, the measures announced on April 11 possibly having a larger budget impact. On the other hand, the reform of the tax administration could have a positive impact over expectations on collections.

The European Commission publishes every year two sets of detailed forecasts (in spring and autumn) and two sets of intermediary forecasts (winter and summer). The interim forecasts include the annual and quarterly values of the GDP and inflation of all member-states for the current year and the following year, as well as aggregate data for the EU and Eurozone.

At the beginning of this month, the National Strategy and Prognosis Commission (CNSP) revised downwardly by 1.4 percentage points, to 2.9% the Romanian economy growth estimate for this year, from 4.3% previously.

The estimates published by the CNSP are in line with the predictions of international financial institutions who revised downwardly the growth targets of the Romanian economy for this year. Thus, the IMF estimated, recently, a 2.2% advance for 2.2%, from 4.8%, the figure indicated last autumn, while the World Bank indicated an even more modest growth for Romania's GDP, of 1.9%.

The budget draft for 2022 was configured for an economic growth of 4.6%. AGERPRES

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