Positive forecasts for Romania

Having felt the full impact of the world economic crisis, the Romania is showing timid signs of recovery. Its predicted 2.5% economic growth rate in 2014, while lower than last year’s 3.5% rate, which was the highest growth rate in the European Union, is viewed by analysts as a decent one. In 2015, the European Commission expects a 2.6% growth rate.

In its chapter on Romania, the Commission’s report says that structural reforms, such as the liberalisation of the energy markets and the new Labour Code, are starting to bear fruit. Domestic demand is expected to overtake net exports as the main driving engine of growth, while private consumption is expected to pick up as consumer confidence improves. Investment is also projected to gain momentum, supported by a higher absorption rate of European funds and the development of major infrastructure projects.

Other macro-economic indicators, such as inflation, unemployment, the budget deficit and the public debt, also point to a good performance. The inflation rate is expected to reach 2.4% in 2014 and 3.3% in 2015. The unemployment rate is projected to go down slowly this year to 7.2%. The budget deficit is forecast at 2%, while the public debt will remain stable at around 40% of the GDP, one of the lowest values in Europe.

In Romania’s case, the European Commission’s predictions take into account the indexation of pensions and the increase in public sector wages. The main risks to budgetary projections for 2014 and 2015 are mainly related to the spending control around elections and tax collection.

While some of the figures may at first sight appear comforting, the European Commission recommends to the authorities in Bucharest to go ahead with fiscal adjustment and structural reforms.

On the other hand, the forecast for Romania is much more positive than the figures across the European Union, which point to a 1.6% economic growth rate and an almost 11% unemployment rate.