The EBRD has adjusted upwards its estimate for Romania’s 2013 GDP growth to 2.5% this month from October's 2.2%, while maintaining the projection for this year’s growth at 2.4%, according to the last issue of the Bank’s Regional Economic Prospects.

The high level of NPLs of over 20% and the on-going cross-border deleveraging may weigh down on growth prospects by constraining the credit recovery, the EBRD said.

Maintaining the growth forecast for 2014 is rather good news in the context of higher base resulted from the stronger-than-expected growth in 2013.

The stronger growth last year, reflected in the Bank’s revised estimate, was driven by higher-than-expected vegetal crops and exports. If the EBRD maintains the forecast for 2014, it means that i. either it expects the two drivers not to reverse in 2014 [which would be remarkable at least for the vegetal crops] ii. or that the EBRD expects other drivers to emerge, more than it anticipated them in October 2013. Indeed, the EBRD mentions along with the robust exports, the certain recovery in domestic demand as the main growth drivers for 2014. Most likely, the expectations are fuelled by recent improvement in the use of EU funds that are able to stimulate investments.

The EBRD also acknowledges the improvement of internal balances – namely price stability and budget balance. Romania went out from an EU excessive deficit procedure and the annual inflation reached 1.6% at the end of 2013.

Nonetheless, we highlight that the fiscal gap has narrowed at the cost of cutting investments, a strategy that will likely continue in H1 this year, while tax collection and the spending discipline remain weak. Efforts are done to improve all these problems, but no real results are reported so far and the political drive is problematic.

Separately, the price stabilisation is largely due to the bakery goods' VAT rate cut and subdued demand in general.