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2020/09/11 / Erste Group Research

Romania Outlook | Further NBR easing is function of fiscal outlook

Our ultra-high frequency index shows economic activity at 81% of an average pre-crisis month in March, at 28% in April, at 43% in May and at 75% in August. The Romanian economy is gradually moving towards pre-pandemic levels, helped by investments in the construction sector and growth of retail trade. On the other hand, the manufacturing sector is slower to recover. As the COVID-19 shock is left behind, legacies from the past related to weak public finances and a high current account deficit are back on the agenda. Political jitters intensified ahead of local elections, but their impact on bond and FX markets has been rather marginal so far.

We forecast economic growth at -4.7% in 2020, +3.9% in 2021 and +3.7% in 2022. Significant inflows of EU grants over the next decade, estimated at 2.4pp of GDP per year on average, should mitigate the contractionary effect of a fiscal consolidation process, which is needed to avoid rating downgrades. The average inflation rate is estimated at 2.8% in 2020 and 3.4% in 2021, inside the NBR's target band. The amplitude and timing of the further monetary policy easing is likely to be correlated with the size and pace of the upcoming fiscal consolidation.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusRomania
Currency in focusRomanian Leu
Sector in focus-


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