The progress of the pandemic, the vaccination campaign and the management of the budget deficit by the government are the main questions for Romania’s economy in 2021.
“I would still say the economic performance is largely up to the progress of the pandemic, although we have this ray of hope created by the vaccine, the outlook has improved. We expect a rebound, our forecast is 4.2%. There are some questions about the development of the sanitary situation, but I think we have reasons to be optimistic about 2021,” Ionut Dumitru, chief economist of Raiffeisen Bank Romania, says.
Economic analyst Aurelian Dochia, too, believes the economy will grow but some sectors will still be reeling from the crisis in 2021. Forecasts are fluid due to the uncertainty that has not gone away.
“The recovery will be differentiated, and some sectors tend to do better or even above expectations. Sectors like transportation, logistics, IT and communications are seeing a lot of demand because the way of life , the way of spending, the production model and demand have changed. On the other hand, some sectors will continue to suffer – hospitality and food service industry, travel,” Dochia said.
Romania starts 2021 with a budget deficit of 7% of GDP, down from the over 9% of 2020. The issue with the deficit is the rigid spending – salaries and pensions, which swallow all the government revenues from taxes and duties.
“The ball is in the fiscal-budget policy’s court. If we don’t have fiscal consolidation, there will be serious consequences in terms of rating, exchange rate, inflation (…), while the economic growth is returning, most European countries will see a significant adjustment of the deficit automatically. That’s not the case for us, the deficits are really high for structural reasons,” Ionut Dumitru said, adding that he believed that keeping the budget deficit above 8% to 9% of GDP would draw the attention of financial markets and rating agencies, so Romania might be downgraded to ‘junk’ category in terms of investments.
(English version by Loredana Fratila-Cristescu)