Under the Spring Forecast published on May 16, the European Commission (EC) updated its projection for Romania's economy, bringing it in line with the consensus expectations - and going a bit further.

The public deficit-to-GDP ratio will rise to 7.5% of GDP this year (under ESA) and will stay in 2023 just above the 6.2%-of-GDP target set by the Government for 2022, according to the scenario drafted by the Commission's experts for the Spring Forecast.

The Government still sticks with the 5.8%-of-GDP cash target - consistent with 6.2%-of-GDP under ESA.

Consistent with the wider public deficits, the EC projects the general government debt to rise to 50.9% of GDP in 2022, and 52.6% in 2023.

Several factors are behind the public finance deterioration expected by the EC: the 2022 budget already contained new expenditure measures (mainly increasing social expenditure, e.g., pensions and children allowance), a higher interest burden due to rising interest rates and lower social security contributions.

In addition, the Commission argues, Romania adopted a compensation scheme to deal with the surge in energy prices until March 2023 and provides support to people fleeing Ukraine.

A new set of social and economic measures was announced on 11 April 2022, which based on the available information, would have a negative budgetary impact of 0.4% of GDP. 

The twin deficits will remain twinned this year and in the year to come, the EC predicts. The current account (CAD) is seen at 7.5% of GDP in 2022 and 7.3% of GDP in 2023 - propped by net imports of goods in excess of 10% of GDP, in both years. When it comes to the real sector, the EC brought its 2022 growth forecast for Romania more in line with the consensus expectations, to 2.6% from 4.2% in February.

It also upped the inflation (HIPC) forecast to an average of 8.9% this year, from 5.3% in February - again in line with the current circumstances and expectations. The central bank itself admitted a gloomier inflationary outlook when hiking, on May 10, the policy rate by 75bp to 3.75%. 

(Photo: Diony Teixeira/ Dreamstime)

iulian@romania-insider.com