Erste Group has made a zero percent year on year real GDP growth prediction for 2012, as well as very moderate 1.1 percent growth in 2013. But, according to Erste, Romania can make changes that will boost potential GDP growth from the 1 – 2 percent mark up to around 3 – 4 percent in the coming years.

The new report from Erste Group, published November 28, predicts that Romania's funding needs will be virtually unchanged from this year in 2013. Erste estimates gross funding needs of RON 70 billion, or just under EUR 15.5 billion at the 4.52 RON/EUR average exchange rate the report predicts for next year. The 2013 funding needs would represent about 11 percent of Romania's GDP, according to Erste's calculations. The budget deficit for 2012 will stay within the 2.2 percent of GDP limit set by the International Monetary Fund (IMF), Erste Group believes, and a new IMF/EU funding deal next year is “likely.”

Erste Group suggests that rapid improvement in EU funds absorption by rewarding successful schemes and setting high targets for the public officials concerned, reforms in the agriculture sector and the restructuring of state owned business could “boost potential GDP from 1-2 percent at present to 3-4 percent in the medium and long term.”

The report judges Romania's public finances to have improved since last year as a result of “tough measures” agreed with the IMF. Going forward, Erste Group sees some threats to public finances. First, low economic growth, which will make it more difficult to balance the books. And second,“fiscal slippage” if Romania fails to secure a follow-on IMF deal in 2013 and “the determination of the authorities to continue the fiscal reforms diminishes.”

Over the coming years, Erste Group forecasts real GDP growth of 0.0 percent in 2012, 1.1 percent in 2013, 2.3 percent in 2014 and 2.9 percent in 2015. The report sees the average unemployment rate staying at 7.4 percent for the next few years, before dropping slightly to 7.3 and 7.2 percent in 2014 and 2015. The exchange rate average for 2012 is predicted at 4.45RON/EUR, while from 2013 to 2015 average rates of around 4.50RON/EUR are forecast. Erste expects a bigger fall against the US dollar, from a 3.48RON/USD rate this year to average rates of around 3.75RON/USD in 2013 – 2015.

Liam Lever, liam@romania-insider.com

(photo source: arhivafoto.ro)