“Given the global and regional developments, we see risks regarding GDP growth to the downside, while the inflation and interest rate outlook are subject to upside risks,” the report reads.
OTP bank also sees inflation peaking at 9.5% in April-May, forcing Romania’s central bank to further hike the refinancing rate up to 4.5% at the end of the year.
Data for January-February 2022 suggest mild improvements after economic stagnation in the fourth quarter of 2021, but the Russia-Ukraine conflict deteriorates the outlook – according to OTP Bank analysts. Admitting that Romania’s trade ties with the two countries are moderate, they expect the higher energy prices, slower euro area growth and the increasing risk premium to take their toll on activity and fuel an increase in inflation.
In terms of public finance, OTP Bank sees the Government as observing the planned fiscal consolidation plans, while some slippages are likely given the increasing energy subsidies, proposed tax cuts and slowing growth.
“In our current forecast, government debt is projected to increase to 55% of GDP by 2023,” the report reads.