Romania’s economic prospects

Backed by a good crop year and an increase in exports to non-EU Member States, Romania’s economic growth might reach 2.4% this year, according to the latest estimate presented by the British country analysis and consulting firm Economic Intelligence Unit (EIU). Romania’s economic prospects are looking good. The report indicates that between 2014 and 2017, Romania’s annual growth rate will increase, although it will not exceed the 4% threshold. Industrial output will also see a 3.6% increase in 2013.

The London-based analysis firm also points out that in the event of a powerful external influence or a more serious recession in the Eurozone, Romania’s economic forecast might drop for 2013. At the same time, the Economic Intelligence Unit estimates a 3.4% inflation rate by the end of the year. In May, Romania’s inflation rate stood at 5.3%.

Also worth mentioning is that the National Bank of Romania has lowered its inflation rate forecast for the end of the year, from 3.5% to 3.2%. Among others, this forecast accounts for the scheduled increases in the electricity and natural gas prices, the slowdown in trading with Romania’s main partners in the European Union, the continuous drop in global oil indices against the diminishing demand at international level.

On the other hand, chances for foreign direct investment to grow by 2017 are slim, EIU analysts have claimed. Instead, a better absorption of EU Funds would supplement investments in infrastructure, which as a result would step up Romania’s long-term export potential. In the 2014-2020 period Romania was allotted 22 billion euros from the EU budget, which is 2 billions more than in the previous 2007-2013 period. Romania’s estimate rate of absorbing structural funds is bound to exceed 12%, which is what Romania has been absorbing in the past seven years.

However, administrative deficiencies and the need for the Government to co-fund projects are encroaching on Romania’s prospects of improving its absorption rate. Moreover, the Economist Intelligence Unit has set the exchange rate at 4.65 lei for one euro and at 3.55 lei for a dollar. EIU analysts expect the national currency to remain vulnerable to international financial turbulences in 2013.

The main reason for this remains uncertainty across the Eurozone surrounding the US Federal Reserve Bond Buying Program, which might have a negative domino effect on emerging markets such as Romania.