Romania Country Risk Report Q3 2018
Despite real GDP growth peaking in 2017, Romania's economy will remain one of Emerging Europe's outperformers in the years ahead, suggesting the country will make further progress on its EU convergence. Growth will be relatively broad-based, with private consumption, exports and investment all performing well.
However, loose monetary and fiscal policies have contributed to the strong economic performance of late and, with inflationary pressures building and the trade deficit rapidly widening, risks of overheating are mounting. We believe the National Bank of Romania will be forced to tighten policy fairly aggressively in 2018. More gradual tightening will follow in 2019.
The PSD-ALDE coalition government will face broad uncertainty and weaker stability in the years ahead on the back of its focus on the implementation of a relatively controversial judicial reform and fiscal trajectory.
The government will come under increasing pressure to reverse its loose fiscal policy, given the rapid increase in its fiscal deficit.
While we do not project a major deterioration in the near term, owing to a low starting level of public debt and relatively low borrowing costs, the current trajectory poses mounting challenges for the longer term and, alongside a rapidly deteriorating external position, will restrict future flexibility in responding to unexpected shocks.
Executive Summary Core Views Major Forecast Changes Key Risks Chapter 1: Economic Outlook SWOT Analysis BMI Economic Risk Index Economic Growth Outlook Slow Start Harbinger Of Downturn In 2018 GDP By Expenditure Outlook TABLE: GDP GROWTH FORECASTS TABLE: PRIVATE CONSUMPTION FORECASTS TABLE: GOVERNMENT CONSUMPTION FORECASTS TABLE: FIXED INVESTMENT FORECASTS TABLE: NET EXPORTS FORECASTS External Trade And Investment Outlook External Dynamics Expose Romania's Vulnerability Outlook On External Position TABLE: CURRENT ACCOUNT BALANCE FORECASTS Monetary Policy Tightening To Continue At A Slower Pace In 2019 Monetary Policy Framework TABLE: MONETARY POLICY FORECASTSFiscal Policy And Public Debt Outlook Pension Reform Raises Fiscal RisksStructural Fiscal Position TABLE: FISCAL AND PUBLIC DEBT FORECASTS Currency Forecast RON: Monetary Policy To Shape Trajectory TABLE: CURRENCY FORECAST Chapter 2: 10-Year Forecast The Romanian Economy To 2027 Major Untapped Growth Potential TABLE: LONG-TERM MACROECONOMIC FORECASTS Chapter 3: Political Outlook SWOT Analysis BMI Political Risk Index Domestic PoliticsPolitical Risk To Remain High TABLE: POLITICAL OVERVIEW Long-Term Political Outlook Progress Ahead Amid Geopolitical UncertaintyChapter 4: Operational Risk Operational Risk TABLE: OPERATIONAL RISK Business Crime TABLE: BUSINESS RESPONSE TO WHITE COLLAR CRIME AND ORGANISED CRIME Education TABLE: ROMANIA AND OECD AVERAGE – STUDENT PERFORMANCE SCORES (2015) Chapter 5: BMI Global Macro Outlook Key Divergences Emerging In World Economy TABLE: GLOBAL MACROECONOMIC FORECASTS TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y TABLE: ROMANIA – MACROECONOMIC DATA & FORECASTS