Romania could register ‘mini economic boom’ in election year 2012

With elections approaching, The Vienna Institute for International Economic Studies (WIIW) estimates GDP will rise by 2 pc this year and by 4 pc next year.
Romania will enter a process of economic recovery and a ‘mini economic boom’ is expected in the election year 2012, says the Vienna Institute for International Economic Studies (WIIW) who anticipates that the Government will renounce fiscal and wage austerity policies ahead of election.


The Gross Domestic Product (GDP) in Romania will grow by 2 per cent this year and by 4 per cent in 2012, according to the WIIW report, Mediafax informs. In 2013, the pace of economic growth would slow down to 3 per cent. At the end of 2010, WIIW analysts were anticipating 1 per cent growth in 2011 and 2.5 per cent in 2012.


‘A return of the boom in the years prior to the crisis is impossible because of the difficult foreign financing conditions; however, a mini-boom can be expected in the election year 2012. Most likely, it will be followed by a new wave of tax stabilization and growth deceleration. Factors that determine this cycle are already visible in the current plans of the Government, however the actual economic growth will depend on the economic policies and capital markets’ response,’ says Gábor Hunya, senior economist WIIW.

The economic contraction registered in Romania in the last two years has been one of the longest and deepest in Europe. The austerity measures taken at the middle of 2010 caused an additional decrease of local demand and had a negative impact of over 1 per cent of the GDP for the entire year. The wage cuts operated in the public sector and the VAT hike triggered a decline in consumption. The financial security offered by the agreement with the International Monetary Fund allowed for structural adjustments to be postponed, reads the report, and the tax adjustments last year were extremely tough and inadequately prepared.


FISCAL STABILITY GROWING, UNCERTAINTY ABOUT ECONOMIC TREND


The confidence in Romania’s fiscal stability as a wh*** has grown in the last few months, Hunya notes. The programme Romania had with the IMF was considered as a successful one and the 2011-2012 fiscal plan is regarded as sustainable. On the other hand, there is a lot of uncertainty about the future economic trend. None of the three governments of the last two years could offer a credible tax programme that could be really implemented. The precautionary agreement with the IMF that is currently being contemplated could give a certain amount of security, but will impose less limitations on the tax policy than the existing stand-by agreement.


This year’s forecast, more optimistic than the views of most analysts, is supported by the recovery of the economy from a very low level, the report states. Both consumption and investment are beginning to recover. This evolution will be inevitably followed by corrections in 2013, the result being a smaller GDP growth.


In addition, the WIIW specialists do not see a medium-term potential for extraordinary improvements of productivity and competitiveness. Any growth of consumption demand by over 3 per cent will lead to a deterioration of the current account deficit which, in turn, will have a negative impact on the GDP and financing.