Romania's economy is expected to decline by 5% this year, according to the updated forecast of the European Bank for Reconstruction and Development (EBRD), compared to a 4% decline forecast in May.

For 2021, the EBRD expects a 3% expansion of Romania's GDP, compared to a 4% advance forecast in May.

The Romanian Government drafted its latest budget revision in August, based on expectations for a 3.8% GDP contraction this year and a 4.9% recovery in 2021.

The EBRD has worsened its estimates on Romania's economic evolution in 2020 and 2021 by 1pp for each year due to the prolonged crisis caused by the coronavirus pandemic (Covid-19), according to its updated Regional Economic Prospects report, released early on October 1.

Furthermore, the Bank stresses that even the sluggish 3% recovery next year is contingent on a gradual normalization of economic activity in Romania and its main trade partners, and a resumption of Romania's structural reforms.

This will be hard to achieve if social distancing remains in place for longer than anticipated, EBRD warns.

The revision carried by the EBRD over the whole region where it operates reflects measures already taken by authorities to contain the impact of the coronavirus, which lasted for longer than previously anticipated.

The EBRD now expects the 38 economies where it invests will, on average, contract 3.9% this year compared to a previous -3.5% forecast. The 3.6% recovery next year is 1.2pp lower than the Bank's May forecast.

(Photo: Aleksandr Zubkov/ Dreamstime)

andrei@romania-insider.com