In the first quarter of 2022, Romania’s economy surprised on the upside with a 5.2% real GDP growth rate. According to provisional data, this outturn is explained by a solid increase in gross fixed capital formation and private consumption, while net exports contributed negatively. This robust growth was backed by higher wages keeping pace with inflation and the phase-out of COVID restrictions.
Last update : Summer 2022 Economic Forecast (14/07/2022)
|GDP growth (%, yoy)||-3,7||5,9||3,9||2,9|
|Inflation (%, yoy)||2,3||4,1||11,1||7,2|
Thanks to this very strong first quarter, GDP growth for the whole 2022 is revised upwards to 3.9%. For 2023, however, a downward revision to 2.9% is warranted, in line with the slower global and EU growth prospects. Private consumption and investments are set to be the main growth drivers for this year and the next, while net exports are projected to act as a drag on GDP and lead to a widening of the trade deficit.
Going forward, economic activity and sentiment indicators point towards a less optimistic second quarter. For the rest of the forecast horizon, both positive and negative factors intertwine. On the one hand, the high inflation is set to dent the purchasing power of households. On the other hand, the upbeat outlook in the labour market and the support measures announced by the government in April, notably for vulnerable households, should keep private consumption growing albeit more moderately. The dampening effect of high interest rates and uncertainty on private investment is forecast to be more than offset by investments supported through the sizeable RRF and other EU funds. The foreign trade outlook worsened due to the war and lockdowns in other parts of the world, implying a slowdown, which will affect more exports than imports, as seen so far.
The steep and continuous increase in food and energy prices pushed annual HICP inflation to 12.4% in May, lifting the 12-month average inflation to 7.1%. Prices are set to rise further over the forecast horizon because of energy, as not all consumers are covered by the capping scheme and as numerous electricity and gas contracts will be renegotiated in the coming months. A spike in prices for this HICP component is expected in April 2023, as the capping scheme is set to expire. Food prices are also set to increase given the global price trends and shortages caused by the war. Average annual HICP inflation is projected at 11.1% in 2022 before slowing down to 7.2% in 2023, as energy prices are set to moderate and base effects to kick-in. Stronger wage dynamics than currently estimated represent an upward risk to the inflation forecast.