EBRD also lowered the country’s economic growth projection for 2019 to 3.6% from a previously seen 4.2%, according to the “Regional Economic Prospects in the EBRD Regions” report released Thursday.
“Growth in Romania is expected to gradually moderate from 7.3% in 2017 to 4.2% in 2018 and 3.6% in 2019, more in line with the economy’s long-term potential growth. (…) Bulgaria and Romania are also performing well though signs of overheating are becoming apparent in the latter,” the report notes.
In Romania, growth rate moderated from 7.3% in 2017 to 4% year-on-year in the first half of the year.
Following a growth rate of 7.3% in 2017, one of the highest rates in the EU, the economy is slowing down in 2018 with GDP growing by 4% year-on-year in the first half of the year.
Private consumption has been making the highest contribution to growth, driven by the tightening labor market and continuing loose fiscal policies. Investment growth has also increased as a result of increased absorption of EU funds.
Signs of overheating have appeared in the form of a widening trade deficit, pushing the current account deficit to 3.4% of GDP at the end of 2017, and inflation which peaked at a 5-year high of 5.4% in June 2018, the report notes.
A fiscal stimulus has pushed the budget deficit to 2.9% of GDP in 2017, with a further deficit recorded so far in 2018.
EBRD expects Romania’s GDP growth to moderate to 4.2% in 2018 and 3.6% in 2019, due to weakening impact of the policy stimulus and tighter monetary policy, although it will continue to be supported by investment linked to EU funds and consumption linked to the tightening labor market.
Downside risks to the outlook include further worsening of labor shortages, domestic political and reform uncertainty and changing global investor sentiment towards emerging markets, the report noted.