Growth in Romania is now expected at only 1.8% in 2023 as a whole, considering the slowdown in the first half of the year, according to a report published on Wednesday (Sept. 27) by the European Bank for Reconstruction and Development (EBRD). The London-based financial institution’s projection was downwardly revised from an initial 2.5% one in May.
Romania’s economy proved resilient in 2022 and expanded by 4.7%, driven by robust domestic demand and accumulation of inventories. However, in the first half of 2023, growth decelerated to 1.7% year on year. Depletion of inventories and a decline in exports of goods in year-on-year terms dragged down growth. Industrial production has failed to return to growth so far, inflation is still high (at 9.4% in July 2023) and the fiscal position has worsened, EBRD said in its “Regional Economic Prospects”. The fiscal deficit could inch up to 7% of GDP in 2023, much higher than the budgeted 4.4% of GDP.
Strong agricultural production and exports and robust EU-funded investments are sources of upside risks to the forecast, while weaknesses in industry and construction are expected to weigh on growth. Romania’s Gross Domestic Product could advance 3.2% in 2024, as inflation moderates and financial conditions ease, absent any major shocks.
Growth in the EBRD regions slowed from 3.3% in 2022 to an estimated 1.7% (year on year) in the first half of 2023 as high inflation weighed on the purchasing power of households. Oil and gas prices have fallen back to below their pre-war levels, however gas prices in Europe remain almost 4 times the US price and are expected to pick up further during the winter.
EBRD Chief Economist Beata Javorcik said: “Our economists see a diverging pattern of growth among the EBRD regions. The robust growth of the economies of Central Asia and the weaker performance of those in central Europe and the Baltic states reflect the different consequences of energy prices, inflation and shifting patterns of trade.”