The very high uncertainty about investments in Romania will lead to a significant contraction of the economy this year and could also affect the future potential of the economy, the members of Romania's National Bank (BNR) board concluded in their May 29 monetary policy meeting.

Investments in the economy could show a massive decline in the second quarter, which would impact the economic growth for the whole year.

Recovery in investment in the second half of the year depends on many conditions, according to the BNR board members. Firstly, the investment recovery depends on the developments in consumer demand and external demand, as well as on investor confidence and the pace of recovery in the home countries of foreign investors. It also depends on firms' revenues/profits and their access to financing at reasonable costs, which is also dependent on the risk premium.

BNR considers that, given the very narrow fiscal space, a significant contribution to support relaunching investment and economy overall would come from the EU recovery package to counter the COVID-19 crisis. An improvement in the absorption of European funds, amid the flexibilization measures for their use recently adopted at a European level, would also help.

The government-backed IMM Invest program for SMEs, and the measures taken by the central bank to render the prudential regulatory framework applicable to credit institutions more flexible should also have positive effects.

editor@romania-insider.com

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