“Growth is set to continue, albeit at a slower pace than in 2022 due to persistent inflation, tight financing conditions and low growth in trading partners. Core inflation is expected to peak in 2023, and headline inflation to remain above the inflation target over the forecast horizon. Unemployment is projected to only marginally decline, keeping the labor market relatively tight and wage increases high,” the European Commission says.
In 2022, growth reached 4.7% driven by strong private consumption and robust investment. High frequency indicators point to a rather resilient economy in the first quarter of 2023, with sentiment and retail sales turnover increasing and industrial production showing signs of improvement. Employment expectations remained at a relatively high level, the EC added.
Going forward, high inflation, tight financing conditions and more muted growth in trading partners are all set to slow down real growth. Despite these headwinds, private consumption growth is expected to stay positive on the back of higher wages and pensions, as well as of the extension of the energy price cap until 2025. Government support schemes and a resilient labor market will also support economic activity.
Monetary policy is set to remain tight with the policy rate at 7%, affecting the flow of credit to the economy and investments. However, planned investments under the National Recovery and Resilience Plan (NRRP) and inflows of other EU funds are set to more than offset the impact of tight lending conditions. Investments are expected to strongly support real growth in 2023 and 2024.
Net exports are not projected to contribute to GDP growth. Despite subsiding energy prices and improving terms of trade, strong domestic demand is set to keep the trade balance negative. The current account deficit is expected to stay around [8%] of GDP over the forecast horizon, posing external sustainability risks over the medium term.
Overall, real GDP is projected to grow by 3.2% in 2023 and 3.5% in 2024. Risks to the forecast are tilted to the downside as delays in the implementation of the NRRP could reduce investments.
inflation is set to fall to 9.7% in 2023 and to 4.6% in 2024, but risks are tilted to the upside as wage increase pressures are high.
The unemployment rate is expected to decline slightly to 5.4% in 2023 and 5.1% in 2024.
Romania’s government deficit is forecast to decrease to 4.7% of GDP in 2023, from 6.2% in 2022.
(English version by Loredana Fratila-Cristescu)