Romania’s output gap to remain wide as growth rates improve slow - World Bank

By bne IntelliNews June 13, 2013

Romania’s GDP will increase by 1.7% this year and will further accelerate to 2.2% in 2014 and 2.7% in 2015, the World Bank projects  in the June issue of its Global Economic Prospects report*. 

The forecast for this year's GDP was marginally improved from 1.6% projected under the past issue of the report in January. 

Nonetheless, the output gap will remain quite significant since it is estimated by the Bank at 3.5% in 2012. The country’s economy thus remains unable to develop to its underlying potential level and will even underperform in comparison to its peers in the group of Central and Eastern European countries.

Limited fiscal space for public stimuli and low credit growth caused by regional deleveraging are the two key sources of sub-optimal growth in Romania identified by the report. Romania is among the countries that did not manage to recover to levels close to their underlying potential output.

Among peers in the region, Ukraine, Bulgaria, Slovenia and Lithuania share the same problems of twin output gap and lack of fiscal space – but Romania has the widest output gap and one of the wider budget deficits. However, Romania [as well as Latvia and Lithuania] easing the fiscal consolidation will reduce the drag on overall growth, the Bank comments.

The bond flow to the region has improved recently and robust inflows are favourable to countries with large financing needs like Romania [27.1% of GDP financing needs in 2013], the Bank comments. In Q1 alone, inflows to Romania measured USD 4.7bn, making the country, along with Turkey and Serbia, one of the main destination for foreign funds managers.

Among other effects, this put pressure on these countries’ currencies. Nonetheless, the inflows mentioned by the Bank in its report were partly reversed in early June when the currencies have accordingly depreciated as part of the funds flew out.

The Bank also expects Romania’s CA gap to narrow from 3.8% of GDP last year to 3.7% this year and 3.6% in each of the coming two years.

* Growth rates are expressed for GDP measured in constant 2005 U.S. dollars. Therefore are not directly comparable with similar projections of the government or other IFIs using real terms and ESA methodology.

  2000-09 2010 2011 2012 2013 2014 2015
Romania -- WB GEP Jun 2013            
Romania GDP % y/y* 4.2 -1.6 2.5 0.7 1.7 2.2 2.7
CEE** GDP % y/y 4.1 -0.4 3.1 1.5 1.9 2.5 3.1
CA balance as %/GDP -7.6 -4.5 -4.6 -3.8 -3.7 -3.6 -3.6
Romania -- WB GEP Jan 2013            
Romania GDP % y/y* 4.2 -1.6 2.5 0.6 1.6 2.2 3.0
CEE** GDP % y/y 4.1 -0.4 3.1 1.4 1.8 2.5 3.3
CA balance as %/GDP -7.5 -4.4 -4.9 -3.6 -4.3 -3.9 -3.7

Source: World Bank  *GDP measured in constant 2005 U.S. dollars. **Albania, Bosnia and Herzegovina, Bulgaria, Georgia, Kosovo, Lithuania, Macedonia, Montenegro, Romania, Serbia

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