The European Commission sees Romania’s inflation at 2.5% in 2020 and growing to 3.1% in 2021. The unemployment rate is estimate to grow to 6.5% this year from a record low of 3.9% in 2019. Unemployment is estimated to then back down to 5.4% in 2021.
Romania’s budget deficit is expected to grow to 9.2% in 2020 and further increase to 11.4% in 2021, the highest in the EU, under a no-policy-change assumption, despite a projected recovery in tax revenues and phasing out of pandemic-relief related expenditures. This is due to the full-year effect of the 40% increase in pensions in September 2020, an additional upward pension recalculation scheduled for September 2021, and the doubling of child allowance payments.
Romania’s government estimates the economy will contract just 1.9% this year and sees the year-end deficit at 6.7% of GDP. The country’s finance minister said Tuesday the government was analyzing the planned pension increase but the ultimate decision would be political.
The coronavirus pandemic represents a major shock for the global and EU economies, with very severe socio-economic consequences. Despite the swift and comprehensive policy response at both EU and national level, the EU economy will experience a recession of historic proportions this year.
The Spring 2020 Economic Forecast projects that the euro area economy will contract by a record 7.75% in 2020 and grow by 6.25% in 2021. The EU economy is forecast to contract by 7.5% in 2020 and grow by around 6% in 2021.