Assessments by the National Bank

The National Bank of Romania - BNR estimates a higher inflation rate of 7.5% for the end of this year, compared to the previous forecast.

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Leyla Cheamil, 10.08.2023, 14:00

The National Bank of Romania has revised upward, to 7.5%, the inflation forecast for the end of this year, according to the new estimates presented, on Wednesday, by Governor Mugur Isărescu. The initial forecast was 7.1%. At the end of next year, the inflation rate is expected to be 4.4%. According to the basic scenario, the annual inflation rate will continuously decrease until the projection horizon, i.e. June 2025, but at a relatively slower rate. Mugur Isărescu pointed out that only some increased taxes lead to an increase in inflation, namely the direct taxes on consumption, excises and VAT.

„Increasing income taxes, for example, can even have the opposite effect. It is more difficult to calculate the increase in income taxation. It leads to a decrease in aggregate demand”, the governor of the BNR explained. According to the presentation, the basic scenario was built on the basis of the legislation in force at the time of the projection and does not include the impact of the fiscal consolidation measures recently discussed by the authorities.

The governor of the BNR also showed that both economic growth and consumption are showing signs of slowing down: „We have economic growth, but significantly weakened for this year, compared to what we thought would happen at the beginning of the year. We have an increase in the annual rate of population consumption at T1. This surprised us too, a little. We had an increase in consumption coming from incomes, but we are noticing a softening of consumption. This attenuation is extremely visible, it is probably related to the populations term deposits. They increased significantly during this period, categorically also due to higher interest rates, therefore, lower consumption leads to higher savings”.

In this sense, Mugur Isărescu stated that Romania must have an economic growth based less on consumption and more on investments. Attracting European funds, he emphasized, is essential from this point of view. At the same time, Mugur Isărescu said that the National Bank fully supports a government program of fiscal adjustment and consolidation. He emphasized, however, that the decision to be made should be political, not fiscal.

Also on Wednesday, the National Institute of Statistics – INS announced that the trade balance deficit in the first half of this year was over 13.3 billion Euros, about 2.1 billion Euros lower than the one recorded in the first half of last year. According to the INS, between January 1 and June 30, 2023, important shares in the structure of exports and imports are held by such product groups as machines and transport equipment, namely over 45% for exports and about 36 % for imports, as well as other manufactured products. (LS)