Romania Country Risk Report Q4 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 story. 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 starting in late 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.
Major Forecast Changes
We have revised down our forecasts for real GDP growth in 2018 to from 4.4% to 4.2%.
Persistent political uncertainty and instability may weigh on Romania's long-term growth outlook.
The government's pro-cyclical fiscal loosening and unpredictable short- and medium-term budget strategy pose threats to the country's creditworthiness.
Romania's external dynamics, namely its widening current account deficit and rising reliance on hot money, expose the country to a higher risk of a sudden capital flight.
Learn how to effectively navigate the market research process to help guide your organization on the journey to success.Download eBook