“The economic outlook for Romania is positive, but risks remain. Real GDP growth is projected at around 3 percent, supported by further recovery in domestic demand,” the World Bank said in its EU Regular Economic Report “Modest Recovery, Global Risks” released Thursday.
“Private consumption will likely remain the main driver of growth on the back of an increase in real disposable income and positive labor market developments.”
The financial institution sees a pick-up in the absorption of EU funds that should support a recovery in investment.
Current account deficit is expected to widen a little, driven by a rise in imports, but it would still remain at around 1% of the gross domestic product.
For 2015, structural fiscal deficit will be around 1% of GDP (1.8% of GDP on a cash basis), bringing Romania in line with its Medium Term Objective (MTO) under the EU Fiscal Compact.
“However, in late March the Government proposed a package of tax reductions—in VAT, excises, construction tax, dividends, etc.—to be implemented from 2016. In the absence of compensatory measures, the adoption of the package would have an adverse impact on the fiscal deficit, the report reads.
The World Bank estimates further easing of the central bank’s monetary policy, as the inflation is expected to remain around zero in the coming period.
“However, the positive macroeconomic situation is partly overshadowed by delays in implementing structural reforms, in particular the calendar for the liberalization of gas prices for households and on the restructuring of the state-controlled energy generation sector. Renewed policy attention is needed to improve the efficiency of public spending, in particular in the area of public investment.”
The bank estimates the economic recovery is underway in the EU, with strengthening domestic demand that is based on both rising consumption and investment. However, there are significant downside risks, the institutions warns, including financial market volatility, deleveraging pressures especially in the Central and Eastern Europe where banking systems are largely dominated by foreign capital, the situation in Greece, and the countries’ public finances affected by a long period of low growth and subdued inflation.
Most EU Central and Eastern European countries (EU-CEE) will continue to grow above the Euro area average, the World Bank estimates. The Czech Republic, Hungary, Poland, Romania and the Slovak Republic are expected to be some of the fastest growing economies in the EU, with growth of over 2.4%, based on robust domestic demand, and continued export growth as the EU recovery gathers pace.
For 2015, the overall EU growth is seen at 1.8%, up from 1.3% on 2014. For next year, the World Bank forecasts a 2% growth of EU’s GDP.