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External imbalances, most serious alarm signal for Romania's sustainability, economic competitiveness (presidential advisor Marinescu)

Cosmin Marinescu

Romania's economy registered a significant growth in the post-pandemic period, including this year, and the most serious alarm signal for Romania's economic sustainability and competitiveness is represented by external imbalances, according to the presidential adviser, Cosmin Marinescu.

"Recessionary risks are expected to be the harsh prospect that some economies will face in the future. Romania is not part of these recessionary scenarios, but certain contagion effects cannot be excluded, of the nature of slowing down some categories of exports and the estimated economic growth for the coming years," said Marinescu in the analysis "Macroeconomic risks and challenges - perspectives for 2023".

He said that the investment priorities in the draft budget for 2013, through the programmed allocation of 7.2 pct of GDP, are positive premises for the reversal of the factors' contribution to economic growth in favor of investments - based especially on European funds, Agerpres informs.

According to the data presented by Marinescu, in the first 9 months of 2022, the current account deficit exceeded 20 billion euros, and the prospects are still worrying, with the risk of reaching a current account deficit of 9 pct of GDP at the end of the year, considering the excess demand still present in the economy and the strong deepening of the trade balance deficit.

Cosmin Marinescu pointed out that the systematic deepening of the current account deficit reflects, as a principle explanatory factor, the significant decline of the balance of savings - investments at the level of the government sector, and the strong influence of the public sector is in clear contrast with the situation before the financial crisis of 2008, when the deterioration of the current account was mainly generated by the expansion of the private sector, in some respects unsustainable, in the context of a strong positive output-gap.

On the other hand, he emphasized, the trade balance is a strong factor for worsening the current account situation, and the data related to the first 9 months of this year still outline a worrying picture. The trade deficit reached 25 billion euros, almost 50 pct higher compared to the similar period in 2021, being partially determined by the stronger increase in import prices compared to export prices.

The presidential advisor reminded that the budget execution for the first 10 months of the year indicates a deficit of 3.4 pct of GDP, and the current level of the budget deficit outlines the inclusion in the assumed annual target of 5.7 pct of GDP - cash budget deficit, but he mentioned that, in the perspective of 2023 and beyond, increased efforts are needed to sustainably increase the share of tax revenues in GDP, so that the further reduction of the budget deficit is also supported on the revenue side.

Thus, he emphasized that, in the current economic and security context, taking into account the existing risks and vulnerabilities, prudence and responsibility regarding public finances are imperative, and reforms and investments from European funds must be supported and accelerated to the maximum.

As regards inflation, Cosmin Marinescu explained that it "does not appear and disappear like turning on and off a light bulb in the house", and the process of disinflation, of reducing the intensity of inflation, needs a certain time and the accommodation of some adjustments in the economy, including related to the increase in interest rates.

"In this sense, given the need for a consistent monetary policy with the defining objective of targeting inflation, which confers credibility and confidence, it can be anticipated that 2023 will be the year of disinflation", Marinescu said.

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