Brussels sees smaller economic growth

Beyond the “obvious” risks triggered by slowdown in structural reform, the immediate reason for concern regarding the Romanian economy is the implementation next year of an increase in the minimum wage, which could fuel an acceleration in import growth and impact on inflationary expectations, the European Commission says in the macroeconomic forecast released this month.
According to the European Commission analysts, the Romanian economy is set to grow 4.2% this year, while the authorities are still betting on a 5% bigger GDP at the end of 2002. According to Brussels forecasts, Romania will only achieve this growth pace as late as 2004.
At any rate, the European Commission survey points to robust economic growth (4.4% in the first half of 2002), withstanding the negative influences generated by the international slowdown.
However, the report outlines the need for “sustained” implementation of the economic programme set with the International Monetary Fund. Furthermore, a solid recovery of the European Union economies would spur increased demand for Romanian exports.
Despite the slowdown in the EU markets that account for some 67% of all Romanian goods exports, net exports evolved “very positively”, boosting GDP growth by 1.6% in the first half.
Economic growth will also be largely sustained by domestic demand, whose growth pace will however slow down, according to the report.
According to the European Commission, household consumption will be buoyed by the planned increase in the minimum wage, but its growth will still be outpaced by the growth in real average wages.
With an improved macroeconomic situation and advancing structural reforms, investment spending is expected to continue to expand at an increasing pace.
Disinflation is set to continue in 2003 and 2004, but at a lower pace, because of the planned increase in the minimum wage and the ongoing resurgence in import growth.