Radio România Internațional

Tag: economic forecasts

  • Monetary policy and economic forecasts

    Monetary policy and economic forecasts

    After maintaining the monetary policy interest rate at 1.75% for almost 1,000 days, the National Bank of Romania decided to raise it to 2% in the first meeting of its board this year, and now again, to 2.25%. This move has been expected by commentators and comes amidst rising inflation rates.



    The level of the key interest rate is important mainly for the commercial banks that borrow from the National Bank, as well as for foreign investors who prefer countries with high interest rates to secure good returns. The National Bank governor Mugur Isarescu has explained that the measure is intended to reduce inflation so that the price rises do not affect the population and private companies.



    He says the rise in the interest rate would most likely be followed by a rise in the ROBOR index that influences the level of interest rates for loans in the national currency, the Leu. The latter will become more expensive as a result, although only moderately so, the National Bank governor believes.



    Experts say that if the monetary policy interest rate is too far behind the inflation rate, the exchange rate will come under pressure, and the Central Bank will have to step in by selling currency and taking out Romanian Lei from the market, steps that wouldn’t prevent the interest rate from rising anyway. If, however, the Central Bank reacts quickly to the rise in the inflation rate by raising the interest rate, the costs for the whole economy will be lower and volatility will diminish, as well as the costs of long-term loans.



    The Central Bank governor also says the currency market functions well in Romania, the exchange rate is established by supply and demand and that the Central Bank cannot interfere with the currency exchange rate because that would affect the economic mechanisms.



    On the same day as these measures were announced in Bucharest, the European Commission warned that the inflation rate had begun to rise in Romania in the second half of last year as a result of rising food and energy prices.



    In its winter forecast, the Commission estimates that Romania’s growth rate will slow down to 4.5% this year and to 4% next year, following an accelerated growth rate of 6.7% in 2017. The World Bank has recently made similar estimates. Romania’s National Forecast Commission, however, announced on Monday that it revised our country’s GDP growth forecast up to 6.1% this year.

  • Encouraging Economic Prospects

    Encouraging Economic Prospects

    For Europe and Central Asia, a region that includes Romania, but not the Eurozone, the WB forecasts a 3% growth rate for 2016 and 3.5% for the next two years.



    In its latest report on global economic prospects, released on Wednesday, the World Bank raised its forecasts regarding Romania’s economic growth rate from 3.2 to 3.9% for this year and from 3.5 to 4.1% for 2017. The World Bank thus joins the European Commission and the International Monetary Fund, which in late 2015 made public equally optimistic projections, confirming the positive trend of the Romanian economy in the past few years. The EC estimated, in its autumn forecast, an annual 4.1% increase of Romania’s GDP this year and 3.6% in 2017. The IMF makes similar forecasts, namely an estimated 3.9% growth rate this year, while the Government of Romania expects the economy to grow by around 4%.



    The World Bank also improved its estimates regarding last year’s economic growth, from 3 to 3.6%. For the Europe and Central Asia region, which includes Romania, but not the Eurozone, the World Bank expects a 3% economic growth rate in 2016 and 3.5% for 2017 and 2018. The Bulgarian economy is expected to go up by 2.2% this year and 2.7% next year, Hungary will see 2.5 and 2.7% growth rates in 2016 and 2017 respectively, and Poland is to expect 3.7 and 3.9% growth rates. The World Bank remains optimistic as concerns Romania’s economic growth rate in 2018 as well, when it projects a 4% rise in the GDP.



    On the other hand, the World Bank warns that the region is facing many risks, including a possible deepening of geopolitical tensions, persistent low commodity prices as well as a decline in remittances from developed countries. The international financial institution argues that more rapid growth in the region will depend on supporting a rebound of investment, which is still below the pre-crisis levels.



    In many countries, public investments are constrained by limited fiscal space, and private investments are affected by companies still struggling to work off debts. In some EU Member States, like Bulgaria and Romania, investment is supported by the EU structural funds, but the absorption capacity remains a problem.



    According to the World Bank, one of the regional factors that might affect Romania and Bulgaria is the slow-down in Turkey’s growth. At global level, according to the report, growth will be affected by the problems of the emerging economies, but the GDP increase should see a modest pick-up, from 2.4% in 2015 to 2.9% this year, thanks to the more substantial growth of the developed economies.


    (Translated by Ana Maria Popescu; Edited by Diana Vijeu)

  • Downgraded Global Growth Forecasts

    Downgraded Global Growth Forecasts

    In November, the Organization for Economic Cooperation and Development (OECD) downgraded global growth forecasts, for the second time in the past three months. The decision is closely connected to the slow progress on emerging markets, which impacts other countries as well, such as Germany and Japan. Forecasts show the world economy will grow by 2.9%, down from 3% in September, but will pick up to 3,3% in 2016. However, it will fall below the earlier 3.6% estimate.



    Worldwide trade growth is forecast at a modest 2% this year, down from 3.4% in 2014. The OECD chief economist Catherine Mann said: “This is deeply concerning. Robust trade and global growth go hand in hand.”



    On the other hand, the refugee crisis in Europe might boost economic growth, with the governments’ extra spending on migration-related issues. The inflow of refugees could add between 0.1 and 0.2% to the GDP growth rate in 2016 and 2017, OECD estimates. If the refugees who remain on European soil are rapidly integrated into society, then the hosting countries will only have gain from that, the OECD report also shows. The European Commission estimates that some 3 million asylum-seekers will reach the European Union by 2017.



    As regards the Romanian economy, it is also likely to follow an upward trend in the coming years. According to Radio Romania’s correspondent to Brussels, Cerasela Radulescu, the European Commission’s estimates for 2015 indicate a budget deficit of 1.5%, which will remain equal to the set target. The aforementioned estimates also point to a drop in the unemployment rate.



    Cerasela Radulescu: “The European Commission expects the Romanian economy to continue to grow over the next few years, reaching a peak of 4.1% next year, against stronger consumption due to lower taxation. EC Vice-President Valdis Dombrovski said that these predictions indicate better economic performance for Romania. He said that this would not have been possible without decisive action that was taken in reforming public finance. However, continuing structural reform remains extremely important, alongside ensuring the sustainability of public finance and economic growth on short and medium term through responsible budget policies. The EC expects the unemployment rate to continue to drop in Romania in the next few years.”



    In Bucharest, the National Bank of Romania has changed its estimates for inflation in 2015 and 2016. Right now it estimates an inflation 0.7% lower for the end of this year, and 1.1% at the end of next year, from minus 0.3% and 0.7%, respectively, as it had previously expected. The National Bank governor, Mugur Isarescu, said that in the third quarter of 2015, the consumer price index had a lower trajectory than anticipated, due mostly to three factors.



    Mugur Isarescu: “The main factor that pushed inflation downwards and in the negative, not only outside its intended target, was reducing the VAT for all food, non-alcoholic drinks and the restaurant industry. Also in this direction, a major factor was the sharp drop in the price of crude oil on the world market and the subsequent drop in fuel prices in Romania, as well as the expectation of very low inflation.”



    According to the central bank governor, inflation will stay in the negative until late next year, and will revert to the interval targeted by the National Bank, between 1.5 and 3.5%, only as late as 2017. In this context, he said that inflation may be influenced by uncertainties about foreign as well as domestic markets. In this context, he said that people who got relatively cheap loans in the national currency should not be afraid there would be shocks in this area, because the National Bank will act using its available tools to maintain a relative stability in all areas, be it prices, exchange rates and interest rates. The governor of the National Bank added that the boom in foreign currency lending right before the crisis, even though it had among its causes the confidence the Romanians had that the country would join the Eurozone in 2015, was mainly caused by other aspects too.



    Mugur Isarescu: “The boom in foreign currency lending was also linked to setting targets that didn’t seem at all ambitious, but the engine for foreign currency lending was linked to the fact that interest rates in Romania were higher, we privatised foreign capital banks, they came with good things, capital, management, good administration, credibility, but they also came with this product, foreign currency lending, which very few, in 2006-2007, believed could be so toxic.”



    The wish for improvement generated the belief in Romania that once the country joined the EU, Romanians would live better, just like in the west European countries, which turned out to be an illusion, said the governor of the National Bank.


    (Translated by: Eugen Nasta and Calin Cotoiu; Edited by: Diana Vijeu)

  • May 5, 2015 UPDATE

    May 5, 2015 UPDATE

    The Prime Minister of Romania, Victor Ponta, Tuesday carried on his official visit to the United Arab Emirates, the last stop in a tour in Gulf countries. The Romanian head of government had meetings in Abu Dhabi with senior officials and representatives of the business community. The main topic on the agenda was the Government’s plan to list the Otopeni Airport in Bucharest and to restructure the Romanian airline TAROM. Proposals regarding investing in this project were also discussed on Monday with the PM of the UAE, Sheikh Mohammed bin Rashid Al Maktoum. PM Ponta’s tour also included Saudi Arabia and Kuwait, and was designed to boost Romania’s political dialogue and economic relations with the countries in the Persian Gulf region.



    The judicial and administration committees in the Romanian Parliament’s Chamber of Deputies issued a favourable report on a bill aimed at amending the law on the country coat of arms and the state seal. The bill provides that the eagle on the national coat of arms should be crowned. According to the initiators, the bill is designed to “emphasise the idea of continuity, sovereignty and unity of the Romanian state and of the period when they were achieved.”



    The European Commission has improved its Eurozone economic growth estimates for this year, but lowered its forecast for Greece. In a document released on Tuesday, EC estimates for Romania point to a strong economic growth rate for both the current year and the next. According to Radio Romania’s correspondent in Brussels, Romania is the only EU country where an increase in employment figures is estimated. The unemployment rate is expected to drop this year to 6.6% and in 2016 to 6.4%. The GDP is expected to grow by 2.8%, primarily thanks to private consumption and investments.