Romania is out of recession

The European Commission has announced that Romania has come out of recession in the third quarter of the year.

Warning: Trying to access array offset on null in /home/web/rri.ro/public/wp-content/themes/rri/template-parts/content.php on line 98
România Internațional, 05.11.2014, 14:14

Romania is out of recession, with a 1% growth of the GDP in the third quarter of the year compared to the previous quarter, after dropping for two quarters in a row, reads the European Commission’s autumn forecast made public on Tuesday. According to this forecast, Romania will register a 2% economic growth in 2014, lower than the previous 2.5% estimate.

Private consumption and exports were the main growth engines in the third quarter, but investments continued to drop. Brussels’ report also shows that in the first half of 2014, Romania registered a 12.8% growth in exports, exceeding expectations, while imports went up by 10.6%. On the other hand, in the second half of the year, the Commission expects this development to slow down and to even take a downward trend in the 2015-2016 period.

At the same time, because of the domestic demand, the increase in imports will exceed that of exports, the European Commission has warned, which has also revised the economic growth forecast for 2015, down from 2.6% to 2.4%. The European Commission also estimates that Romania’s budget deficit will drop to 2.1% of the GDP this year, but in 2015 the fiscal consolidation process will reverse, with a deficit rate growing to 2.8%, unless the Government takes the necessary fiscal policy measures.

The Commission believes the Executive will have to increase taxes or reduce expenditure in order to make up for the drop in revenues forecast for 2015, a drop triggered by the reduction of social security contributions, the tax on special construction works and excises. The European Commission has warned that by the time the winter forecast was drawn up, the authorities in Bucharest failed to supply the Commission with a draft budget for 2015.

The Commission recalls that the budget deficit target agreed by Romania with the International Monetary Fund and the European Commission for next year is 1.4% of the GDP. In response, the Governor of the National Bank of Romania, Mugur Isarescu, has stated that, given the budget surplus registered in Romania in the first 10 months of the year, it is possible that next year no tax increase or reduction in spending will be necessary. He has also said that a decrease in public investment could be a benefit in the long run, provided this happens by reinforcing financial discipline, eliminating unrealistic projects and corruption, even if this may affect economic growth in the short run.

On the other hand, the Central Bank has again reduced the monetary policy interest rate by 0.25%, down to 2.75% per year. The Central Bank has also decided to reduce the rates on minimum statutory reserves for liabilities in foreign currencies from 16 to 14%. The Central Bank has also maintained to 10% the statutory reserves for liabilities in the national currency.