IMF: Romania’s GDP to grow 1.6pc in 2013, 2pc in 2014. Inflation rate to ease to 3pc in 2014

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The IMF expects Romania’s economy to grow 1.6 percent in 2013 and 2 percent in 2014, while the inflation rate is seen hitting 4.5 percent this year and sliding to 3 percent in 2014, informs the IMF country report posted on the website of the international financial institution.

 Romania’s close trade and financial linkages with other EU countries provide growth opportunities over the medium term, but in view of the recession in the euro area, they also dampen current prospects, reads the IMF report drafted after the latest reviews of the precautionary agreement with Romania.

The large capital inflows prior to the crisis would not appear likely to spontaneously resume anytime soon as a source of growth and the absorption of EU funds, although gradually improving, remains low and cannot be counted on to significantly boost growth. This puts a premium on continuing to implement fiscal and monetary policies that support macroeconomic stability and on intensifying structural reforms to improve the business climate and service delivery in key sectors such as energy and transportation, the IMF cautions. Making Romania a more attractive place to invest will spur growth, job creation, and convergence with average EU income levels, the report also notes.

GDP growth is expected to pick up in 2013 to 1.6 percent due to a rebound in domestic demand as political uncertainty has subsided, fiscal policy is less tightened, EU-fund disbursements resume, and agricultural output returns to more normal levels. Net exports’ contribution is expected to remain negative, reflecting continued slow growth in export markets. However, the recovery is expected to continue in 2014, with real GDP growth reaching 2 percent, the IMF considers. As employment and investment recover, potential output growth is projected to increase from 1ź percent in recent years to almost 3 percent by 2018, with the output gap closing over the medium term.

Inflation is expected to remain above 4.5 percent throughout most of 2013 as the recent food price shock and administrative price increases take time to dissipate. Annual headline inflation is expected to decline during the second half of 2013 to 3.6 percent by year-end, and to ease further to 3 percent by end-2014. The declining inflation in the second half of 2013 assumes a normal harvest and is supported by reversing base effects, the report states.

The current account deficit is projected to remain below 4 percent of GDP in 2013-2014. Import growth, stimulated by increased domestic demand, is expected to slightly exceed export growth, which is constrained by weak growth in Romania’s main trading partners.

Capital inflows are expected to increase, with foreign direct investments picking up somewhat in 2014 from recent lows and continued portfolio inflows.

The Board of the International Monetary Fund (IMF) announced at the end of June 2013 the successful conclusion of the Romania’s agreement with the IMF, the country’s second stand-by arrangement, noting that all the major targets had been accomplished and pointing to the progress made towards macroeconomic stability and structural reforms.

The EUR 3.5 bln worth of stand-by arrangement (representing approximately 300 percent of Romania’s IMF quota) was originally approved on March 25, 2011 and is of a precautionary type, with drawings performed only in case of necessity.

In 2009, Romania secured a 24-month stand-by arrangement amounting to EUR 12.95 billion from the International Monetary Fund as part of a support package worth EUR 19.95 billion extended jointly by the IMF, the EU and the World Bank.

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