With an estimated 3.2% GDP growth this year, revised from 2.8% under the Winter Forecast, Romania is expected to outperform all other EU member states (with the exception of small economies like Malta or tax havens like Ireland) this year, according to the Spring Forecast of the European Commission published on May 15. In 2024, Romania’s growth will strengthen to 3.5%, according to the same forecast.

The scenario may be less bright in the case of delays in the implementation of the resilience facility reforms and investments, the Commission warns.

Furthermore, the Commission expects Romania’s record growth to help the government bring the public deficit down to 4.7% of GDP this year from 6.2% of GDP in 2022. In 2024, the EC is confident that despite multiple elections, the Romanian executive will go further with fiscal consolidation to a 4.4%-of-GDP fiscal gap that is still far from the 3%-of-GDP target.

Fiscal consolidation and sharp nominal growth will lead to moderate public indebtedness, seen at 45.6% of GDP at the end of this year and 46.1% of GDP one year later.

The energy-related taxes this year and the phasing off of energy-related subsidies in 2024 are expected to play a key role in the fiscal consolidation, besides a robust rise in revenues driven by economic growth and moderation demonstrated by the executive on the spending side. The net budgetary cost of the energy support measures is projected in the Commission 2023 spring forecast at 0.3% of GDP in 2023, compared with 0.4% in 2022.

The deficit is forecast to fall to around 4.4% of GDP in 2024, as current expenditure decrease as a share of GDP, due to the discontinuation of some measures implemented in 2022/2023 amounting to about 0.3pp of GDP and to the effect of automatic stabilisers as nominal economic growth is expected to be still substantial.

General government debt is projected to decrease to 45.6% of GDP in 2023, due to deficit reduction and stock-flow adjustment, before increasing to 46.1% in 2024. Risks to the fiscal outlook are tilted to the downside.

iulian@romania-insider.com

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