EC downgrades Romanias 2012 GDP projection, warns of downside risks.

By bne IntelliNews February 24, 2012
The European Commission said it has adjusted downwards its projection for Romania's 2012 GDP growth to 1.6% from 2.1% forecasted in the autumn of 2011. The adjustment was made as part of the EC's interim spring forecast issued earlier this week. It reflects the negative effect on Romania's growth this year stemming from continuing uncertainties in the financial markets and the developments of the euro-area sovereign-debt crisis. The downside risks for the country also come from the weaker consumption due to tight consumer lending and disposable incomes remaining under the constraints of households' indebtedness. Inflation is expected to further decline in the first half of 2012 after coming close to the central bank's year-end target in December 2011, the EC projects. This year's average HICP inflation would ease to 3% from last year's 5.8% when consumer prices rose as a one-off effect of the VAT rate hike. Nonetheless, the Commission sees the pending energy price liberalisation and any further hikes of other administered prices as a threat to the inflation outlook. The EC's baseline scenario for this year is grounded on expectations for: Prudent households' consumption amid continuing balance sheet adjustments; Weaker than anticipated private investments, due to domestic and foreign uncertainty; Budget constraints due to further fiscal consolidation, which will constrain public consumption; Public investment, supported by an anticipated improvement in the absorption of EU funds, is expected to play a key role in 2012.

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