Romania’s economic growth prospects, revised down by the European Commission

Romania’s economic growth prospects, revised down by the European Commission


By Daniel Stroe – Bucharest

The European Commission has today revised down Romania’s economic growth outlook for 2014 and 2015 compared to its initial evaluations and the Romanian Government’s assessment, following a severe decrease in foreign investments.

For this year, EU’s executive arm foresees a 2 % economic growth, compared to 2.5 % in spring, and a 2.4 % growth for 2015, down from 2.6 per cent, as the initial prognosis showed. A 2.1 % deficit is expected at the end of this year, down from 2.2 per cent in 2013.

The European Commission argues the revised figures come as foreign investments have considerably decreased, down from 2.7 billion Euros last year to 1.1 billion in the first half of the year. Brussels expects though an increase of investments over the second half of 2014, following a cut in social insurance contributions, tax exemption for reinvested profit and a re-launching of the national currency bank loans.

In reality, Romania’s economic growth rhythm has slowed down annually, from 3.5 % in 2013 to 2.4 % in the first half of 2014. Private consumption and exports have been the main drive behind the economic growth.

Amid a slow recovery of the Euro Zone, Romania’s economic growth rhythm will gradually accelerate to 2.4 % in 2015 and 2.8 % in 2016, also in the context of a beefed up consumption bolstered by a increase of salaries, a lower inflation and a cut in interest rates.

EU’s numbers are in stark contrast with statistics of the International Monetary Fund (IMF) which has revised up its economic growth prognosis for Romania, from 2.2 % to 2.4 %, according to its World Economic Outlook issued early October.

The previous forecast for the Romanian economy growth issued this spring stood at 2.2 per cent. The prognosis remained the same, namely 2.5 per cent, for next year’s Romanian economic growth. The Romanian Government anticipates a 2.8 % growth this year. Late last year, when the 2014 state budget was drawn up, authorities in Bucharest foresaw a 2.2 % growth for this year. Romania had a 3.5 % last year, one of the largest among the EU countries.

The European Commission highlights that, despite revised numbers, exports of goods and services have significantly increased over the first six months by 12.8 %, exceeding expectations, while imports have gone up by 10.6 %, but exports contribution to the economic growth is expected to decrease over the second half of 2014. Brussels’ experts warn Romania’s economic situation is closely associated with further deterioration of geopolitical tensions in the region and economic perspectives of the country’s main economic partners, even though an increased rate of EU funds absorption and a more robust internal demand could balance the risks.