EC expects fiscal consolidation in Romania, cuts 2012 growth forecast to 1.4%.

By bne IntelliNews May 14, 2012
The European Commission said it has downgraded Romanias GDP growth forecast to 1.4% from 2.1% for this year and to 2.9% from 3.4% for 2013, but it still expects that the domestic demand will support expansion in the next two years at significant rates. According to the ECs Spring Economic Forecast, the growth expectations in Romania are linked to gross fixed capital formation supported by the EU funds absorption and certain revival of private consumption in the second half of 2012. Furthermore, the fiscal consolidation in the country is expected to continue despite the local and parliamentary elections due this year. The general government deficit is projected at 2.8% of GDP under the ESA 95 definition, down from 5.2% in 2011. The fiscal consolidation would continue in 2013, when the gap is seen at 2.2% of GDP. Nonetheless, the structural gap would not drop below 1% of GDP despite its sharp contraction to 1.2% of GDP in 2013 from 3.3% of GDP in 2011. IntelliNews Comment : Against the broadly positive scenario drafted by the EC for Romanias economy in the coming two years, we see significant downward risks related both to the GDP outlook and to the fiscal consolidation. The EU funds absorption did not improve at all in Q1 despite the governments concentrated efforts. Furthermore, the consumers confidence also remains weak. Even a moderate fiscal slippage could push the fiscal deficit above the 3% of GDP threshold this year and the pressures in this regard are rather high.
Spring EC Forecast 2008 2009 2010 2011 2012 2013
GDP [y/y %] 7.3 -6.6 -1.6 2.5 1.4 2.9
Contr. to GDP growth [pps]
Domestic Demand 11.9 -15.0 -1.6 1.8 2.1 3.6
Inventories -3.5 1.4 0.0 1.4 -0.1 0.4
Net Exports -1.0 7.0 0.0 -0.8 -0.6 -1.1
Domestic Demand Elements
Private Consumption [% y/y] 9.0 -10.1 -0.4 1.3 1.3 2.6
Public Consumption [% y/y] 7.2 3.1 -4.4 -3.5 0.8 2.5
Gross Fix Cap. Formation [% y/y] 15.6 -28.1 -2.1 6.3 4.7 6.4
Net lending/borrowing [% of GDP] -11.0 -3.6 -3.7 -4.0 -4.9 -4.9
Current Account Balance [% of GDP] -11.4 -4.2 -3.9 -4.1 -5.0 -5.0
General Gov. Budget [% of GDP] -5.7 -9.0 -6.8 -5.2 -2.8 -2.2
General Gov. Gross Debt [% of GDP] 13.4 23.6 30.5 33.3 34.6 34.6
Source: EC
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