UniCredit economists expect the growth rate of the Romanian economy to slow down to 3.7% this year and 3.3% next year, from almost 7% in 2017.

The main factors that influence this evolution are the tightening financial conditions, limited room for fiscal stimuli and lower population income increase, according to the bank’s quarterly macroeconomic report.

“Political and fiscal risks will dominate the agenda this year and next. Economic growth is expected to fall to 3.7% this year and 3.3% in 2019 amid tighter financial conditions, limited scope for fiscal stimulus and slow income growth. A poor harvest in 2018 and weaker European demand in 2019 could contribute to the slowdown,” reads the report.

The UniCredit economists are focusing on the political risks in Romania, where the ruling coalition is likely to continue pursuing their agenda, despite increasing pressure from international partners. The quality of governance is also affected, lacking major reforms and focus on long-term policies, according to UniCredit. Thus, the bank’s economists warn that even the current forecast is facing downside risks.

“The government is facing a stark choice: it either reduces public spending to cap the budget deficit at 3% of GDP or faces a further tightening in financial conditions. The latter scenario is likelier,” reads the report.

“Without the backing of portfolio inflows, financial conditions would tighten further, likely slowing GDP growth to close to or below 3% in 2019-20,” UniCredit economists warn.

Industry and trade, the main growth engines for RO economy in first half

editor@romania-insider.com