The European Bank for Reconstruction and Development (EBRD) expects Romania’s economy to grow by 4% this year, according to new estimates presented during the bank’s annual reunion in London, on Wednesday.

The financial institution improved its growth forecast for Romania from the previous level of 3.7%, announced in November 2015. Romania’s 4% increase is the highest of all economies in the Central and Eastern European region.

However, next year the GDP increase will decelerate to 3.5%.

“In 2016 and 2017, strong domestic demand will continue to support growth. Consumption will be pushed up by a cut in the VAT rate to 20% from 24% as of January 2016, a 19% hike in the minimum wage as of May 2016, planned wage hikes in the public sector, improved economic sentiment and a low inflation environment,” reads EBRD’s report.

Private investments are also expected to grow on the back of the lower cost of funding and an abolition of the construction tax as of 2017.

However, the uncertainty around the 2016 elections may slow the economic growth pace and the rise in public wages may pup pressures on the budget.

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editor@romania-insider.com