On a highly optimistic note, Romania’s prime minister Florin Citu announced that this year’s economic growth could hit 10%, driven by investments (as opposed to consumption), News.ro reported.

The Government is expected to operate a budget revision in mid-August, and the prime minister’s statements may be interpreted as heralding such a sharp revision on the GDP growth.

Under the latest forecast dated April 26, the state forecasting body envisaged a 5% GDP growth for 2021. While there are grounds to expect an upward revision of the projection, the prime minister’s focus on investments as the major growth driver is not yet supported by data.

And such a scenario is unlikely before the absorption of funds under the Relaunch Plan - most likely early next year.

“From the perspective of annual changes, the recovery had continued to be driven by domestic demand, and household consumption had become again the major determinant, mainly due to the strong revival of purchases of goods, but especially of services, in the context of the easing of mobility restrictions. In turn, the gross fixed capital formation had made a slightly higher positive contribution to annual GDP dynamics,” according to the minute of the latest monetary board meeting of the Romanian National Bank (BNR).

The Gross Domestic Product (GDP) will grow in Q2 and Q3 at quarterly paces faster than envisaged under the latest forecast drafted in May, yet decelerating from the sharp rise seen in Q1, according to the minute.

Romania’s GDP increased by 2.9% in Q1 compared to Q4 last year, in real (comparable prices) and seasonally adjusted terms.

“The economic activity is expected to increase further during Q2 and Q3, posting quarterly dynamics somewhat faster than anticipated in May, although decelerating gradually versus Q1,” according to the minute.

On the downside, BNR warns that those prospects render likely the widening of the positive output gap (hence generating more inflationary pressures) at mid-2021 to a visibly higher value than that indicated by the May medium-term forecast.

(Photo: Natanael Alfredo Nemanita Ginting/ Dreamstime.com)

iulian@romania-insider.com