The IMF forecast of a 5% decline of the economy of Romania this year is closer to the truth, say Adrian Codirlasu, chairman of the CFA Romania, and Aurelian Dochia, economic analyst.
“I look at the government’s forecast of 1.9% decline and look at the IMF’s forecast of a 5% decline. I would rather go with the IMF forecast, especially since the crisis will affect consumer sentiment and consumer spending will be rather slow to rebound,” Adrian Codirlasu says.
Aurelian Dochia says the figures supplied by the government show it is starting to realize the economic impact of the pandemic, even though he believes the figures are optimistic.
“They are the most realist of what has been mentioned until now. They are finally starting to recognize the extent of the disaster, although I think the figure about the economic contraction is too low and this what the other figures are based on. I think the economic downturn in 2020 will be higher than 1.9%, I’d rather lean towards the 5% IMF indicates and under the circumstances, all the other things worsen. Beyond all figures, it’s about people who will have a hard time,” Aurelian Dochia says.
The data presented by the finance minister on Wednesday point to a 1.9% decline and increase in the budget deficit from 3.6% of GDP to 6.7% of GDP. Consolidated budget revenue should drop by a little more than RON23 billion and spending should increase by RON12.5 billion.
A RON23 billion drop in revenue should translate into merely 6.4% decline compared with the estimates at the start of the year, RON360 billion. Will it be possible to recoup the double-digit decline of the first half until the end of the year, so the decline remains 6.4%?
As for spending, the Finance Ministry estimates it will go up by RON12.3 billion. Spending was projected to reach RON400.7 billion at the beginning of the year, and the expected increase is 3.1%. Do the budget’s new needs require so little money?
Which is why this is raising eyebrows among economists.
Ionut Dumitru, chief economist of Raiffeisen Bank says his team sees the economic downturn at 6% in 2020.
“The math is relatively simple. If before the crisis the government’s deficit target was 3.6% and the Fiscal Council saw it near 4.6% of GDP, based on an economic growth projection of 4.1%, we now see an economic downturn of 6%. For each percentage point of economic downturn, 0.35 points are added to the deficit, taking it to over 8% of GDP, plus the payment of furlough, medical equipment and tax facilities. The IMF estimates this package at 2% of GDP so the deficit will top 10%,” Dumitru said.
(English version by Loredana Fratila-Cristescu, Oana Gavrila)