Romanian economy predicted to maintain steady growth until 2008

Friday, April 15, 2005

The National Forecast Committee of Romania today released its economic predictions for the country in the period 2005-2008. The report predicted that the Romanian economy should increase steadily over the next three years, with a rise in gross domestic product (GDP) of about 6.2% per annum until 2008. By the end of 2008, this should lead to Romania's gross domestic product being nearly 30% larger than it was at the end of 2004. For 2005, the prediction is that the economy will grow by 6%, after last year's impressive growth of 8.3%. The reason for the slowing of growth is due to government reforms from 2005-2008, as well as counter-inflationary policy, which are expected to stabilise consumption and therefore slow growth. Despite this, even a growth rate of 6% is one of the highest in the region, and well above the European Union average.

Concerning the structure of GDP between 2005 and 2008, the largest increases are expected to be recorded in the services and industry sectors. While total agricultural output is also expected to rise, it will contribute a smaller share of GDP in comparison to 2004, when a good harvest enhanced total GDP growth by nearly 3%.

The other important macro-economic indicator that the report said Romania must focus on is inflation, which is expected to lower to 7% this year, after a rate of 9.2% in 2004. The National Bank of Romania and the Romanian government have pledged to lower inflation until the country's EU accession in 2007. While unemployment dropped to 6.2% in 2004, one of the lowest rates in Europe, it is expected to rise in 2005 to around 7%, due to structural reforms of the economy, as well as a drop of state subsidies to key industrial sectors. However, by 2008, the forecasted unemployment rate is 6.1%.

Whereas GDP growth, inflation and unemployment are all expected to improve favourably until 2008, the weaker point in the economy is the current account deficit, which should continue to increase until 2008, according to the National Forecast Committee. In 2006, the current account deficit is expected to be 6.2% of GDP, while in 2008 it will be around 5%. While these rates are an improvement of the 2004 figure of nearly 7%, they still remain fairly high. On the other hand, direct foreign investment is expected to rise significantly until 2008, covering a portion of the current account deficit. Foreign invesment in 2005, should reach 4.1 billion euros this year, and will probably increase significantly from 2007 onwards, as Romania becomes a member of the European Union.