This is the largest adjustment to Romania’s GDP forecast announced so far, lower than the 1.5% official forecast of the International Monetary Fund and of the Romanian authorities.
It remains to be seen if the Romanian Government’s budget for this year is yet overoptimistic, based on overestimated economic growth.
Although budget revenues and VAT collections have been rising for over a year, in the last few months the growth rate has steadily slowed down and prospects for the second half of the year are less optimistic. Analysts anticipate a slowdown as the favorable base effect of the VAT hike wears off.
The London analysts of U.S. giant JP Morgan Chase believe the growth of the Romanian economy is much lower than its estimated potential of 4%.
In February, when they announced the 2% growth forecast for Romania’s GDP, JP Morgan reminded that the Romanian economy was “disappointing” last year, when it failed to resume growth, as opposed to most other countries in the region.
In the first half of this year, the economy remained in positive territory, but growth was anemic. The second quarter saw a slowdown of economic growth against the first quarter, with the GDP up by just 0.2% against 1Q, amid slower growth of exports and implicitly of industry, and continued contraction of private consumption.
Economic prospects are balanced for the second half of the year: while a good agricultural year will have a positive influence, the deterioration of external demand because of the debt crisis could negatively affect the economy.
JP Morgan has a pessimistic forecast for next year, as well: growth of 1%.
But Romanian authorities remain very upbeat about evolution of the economy next year, anticipating growth of 3.5%-4%. If the economy has a weaker performance, it will be difficult to adjust the budget deficit, from 4.4% of GDP to 3% of GDP without making additional spending cuts or hiking taxes.
(English version by Daniela Stoican; Editing by Radu Bostan)