The European Commission (EC) estimates that Romania’s economy grew by 6.3% in 2021, mainly driven by strong domestic demand, and it expects the growth rate to ease at 4.2% this year.

The economic slowdown in Q4 last year is explained by the EC as driven by “continued supply restrictions, a new COVID-19 infection wave and a strong pickup in inflation.”

The growth would pick up slightly to 4.5% in 2023. 

The Commission moderated its expectations for this year’s growth, from 5.1% under the Autumn Forecast in November. But the Romanian Government has revised its expectations downward as well, yet remaining slightly more optimistic with a 4.6% assumption used for this year’s budget planning.

The Recovery and Resilience Facility and other EU Funds are seen by the Commission as supporting strong investments. The expected increase in interest rates, however, is projected to dampen private investments. Foreign trade is forecast to benefit from easing supply bottlenecks but is not expected to provide a growth contribution.

The Commission expresses concerns about inflationary developments, shifting its focus from possible further Covid waves that were the main uncertainty until recently. Prices are set to rise further in 2022 due to high energy prices and their passthrough into the prices of other goods and services. Food prices are also expected to increase on the back of higher prices and a lower supply of fertilizer.

Stronger wage dynamics than currently expected are an upward risk to the inflation forecast.

However, on an optimistic note, the Commission expects the HICP inflation to be contained and brought down to 2.5% in 2023 (average) from 5.3% in 2021 without a significant impact on the GDP growth.  

iulian@romania-insider.com

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