EC: Modest recovery ahead for Romania

GDP growth for 2012 is forecast to be relatively subdued at about 0.8%, with domestic demand as its main driver. Harsh winter conditions dragged down economic activity in the first quarter (0.1% q-o-q) but growth recovered in the second quarter (0.5% q-o-q) due to robust investment and private consumption. However, the severe summer drought, waning consumer confidence and renewed difficulties in absorbing EU funds point to a bleaker outlook. Weak economic activity is expected to depress import demand, keeping the current-account deficit broadly stable. Risks to growth continue to be tilted to the downside in 2012 but become more balanced over the forecast horizon. The main country-specific downside risks in 2012 relate to: (i) continuing domestic political uncertainties that could increase financing costs and hold back investment; and (ii) a higher-than expected impact of the drought on agriculture. In 2013, GDP growth should recover to 2.2%. While investment is the main component behind growth, it is projected to slow down compared to 2012 due to depressed activity in the rest of the EU and domestic uncertainties. Credit activity is forecast to improve only modestly as banks continue to deleverage after a long period of deteriorating asset quality. Private consumption growth is expected to accelerate, although it will be held back by continuing needs for repairing households' balance sheets and by tight consumer credit lending standards. In 2013, unlike in 2010-12, government consumption is expected to deliver a marginal positive contribution to growth on account of public sector wage increases. Finally, in line with the projected modest domestic demand recovery, the current-account deficit is forecast to widen slightly, to 4.2% of GDP. For 2014, growth is expected to accelerate to 2.7% as the effects of the reforms implemented in labour and product markets start kicking in. For detailed information, click here!