In May 2020, the EBRD said it expects the Romanian economy to shrink by 4% in 2020 and grow by 4% in 2021.
The EBRD is now forecasting an overall contraction across its economies of 3.9% in 2020, and a return to growth of 3.6% in 2021. The previous forecasts published in May had projected a 2020 decline of 3.5% and a stronger recovery of 4.8% in 2021.
“Output in the EBRD regions contracted sharply in the second quarter of 2020 by around 8.2 per cent year on year. In many economies the contraction was larger than declines seen during the global financial crisis. The speed of recovery is expected to be similar to the one observed in the aftermath of that crisis, with pre-pandemic levels of GDP returning towards the end of 2021. EBRD economies have seen pressure on supply and demand because of domestic measures to contain the pandemic, while external shocks have included low commodity prices, shrinking exports, a collapse in tourism and drops in remittances,” stated the EBRD’s Chief Economist Beata Javorcik.
The EBRD invests in emerging economies from central and eastern Europe through to Central Asia and the Middle East and North Africa, primarily promoting the private sector and supporting sustainable and inclusive development.
The Bank’s latest set of forecasts are subject to a high level of uncertainty and are dependent to some extent on the accuracy of early estimates of growth in the first half of 2020. They are also sensitive to whether governments impose further lockdowns or to how people may react to a continuation of the virus, possibly by self-imposed social distancing.
The new report warns that some sectors, such as tourism, may face lasting damage in the longer term, but says others, such as online retail, could benefit from increased digitalisation. It says that contractions this year are likely to be largest in economies highly dependent on external sources of income, such as Albania, Croatia, Cyprus, Greece and Montenegro, which lost most of their tourist season this year.
Exports from EBRD regions were down by over 14% in the first half of 2020, compared with the same period of 2019. International as well as domestic tourism fell sharply, with international tourist arrivals to the EBRD regions down by some 65% in the first six months, compared with the same period a year earlier.
Other highly affected economies include countries that saw large drops in remittances such as the Kyrgyz Republic, or which are strongly integrated within global value chains, such as the Slovak Republic.
Remittances from Russia to Central Asia, eastern Europe and the Caucasus fell by 29 per cent year on year in the second quarter of 2020, relative to the same period of 2019, similar to the decline seen during the global financial crisis. Payments back to Serbia fell by 30 per cent in January to May 2020, compared with a year earlier. The report said that, while some remittances may have been only postponed, many migrants returned to their home countries, suggesting that remittances may fall further in the future, the EBRD report reads.
According to the survey, job losses, and in particular business closures, appear to be more widespread than during the global financial crisis and the burden of the crisis is disproportionately borne by those with lower levels of education and income. The survey reveals that 73% of respondents in the EBRD regions say they were personally affected by the Covid-19 crisis, compared with only 41% in advanced Europe, where stimulus packages were typically larger. Workers in the region have so far relied more on supplementary employment than during the global financial crisis. About a fifth of respondents in the EBRD regions say they increased their hours in their existing job. A similar share is saying they started a second job.