After accusing a GDP contraction of -7,1% in 2009 and -1,6% in 2010, the country's economic activity recovered in 2011 (2,5%). The recovery phase subsequently weakened again with the exacerbation of economic difficulties of the main trading partners of the Euro Area and in 2012, GDP growth was rather weak (0,7%). The strengthening of exports in 2013 gave new impetus to the Romanian economy (+3,5%), where the contribution of net exports to GDP growth was 4,5pp. From the focus published by the Intesa Sanpaolo Study Center shows how the recovery of foreign demand compensated for the weakness of domestic demand, since public spending and investment have subtracted points from the country's economic growth. On the supply side, the recovery of the secondary and primary sectors provided the greatest support to GDP growth in 2013. Positive notes also came from the services sector which, although slowing down compared to last year, contributed more than half a percentage point to the GDP trend. In January 2014, exports grew by 8,8% in nominal terms and for this year, GDP is expected to grow by 2,6%, with a slight slowdown due to the demand for imports, the growth of which will reduce the net contribution of foreign trade to the GDP trend. A good export trend is expected e an acceleration in the demand for private consumption. The expected economic expansion could favor investments, while public spending is expected to continue to contract due to the need to contain the budget deficit. On the supply side it is expected that the major contribution to growth will come from the industrial sector, the one most exposed to the dynamics of foreign demand. The forecasts speak of aexpansion of the economy in 2015 at 2,8% thanks also to the recovery of investments favored by transfers from the EU reactivated in June 2013, after being suspended in 2009 due to the excessive deficit procedure.
Inflation fell by 1,6% in December, bringing the average for the year to 4,0%. From this point of view the dynamics of prices is expected to remain weak even if increasing due to the recovery of domestic demand. Since 2005, monetary policy has been conducted under the regime of inflation targeting. For the current year and for 2015, the National Bank of Romania (NBR) has set its end-of-period inflation target at 2,5%, with a range of +/-1%. Faced with expectations of easing inflationary pressures, the NBR started in July last year monetary easing cycle reducing the policy rate in several steps up to 3,5% in February. At the beginning of the year, the local currency had experienced a slight weakening, going from 4,4 ron per euro to 4,6 due to the worries about international markets in the face of heightened political instability in Ukraine. Subsequently, positive internal factors in the country, such as the containment of the deficit and the good performance of the real economy, favored a partial recovery and the local currency appreciated up to the current level of 4,5.
The budget deficit in Romania is estimated to decrease to 2,6% of GDP in 2013 from 3,0% the previous year. For 2014, the budget deficit is forecast at 2,2% of GDP if one takes into account the latest measures approved by the Government, i.e., on the side of budget expenditure, the spending commitments for the increase in public salaries, on the revenue side, the increase in excise taxes on energy products, and the expansion of the tax base for wealth tax. In 2015, thanks to the expected acceleration of GDP, the deficit should decrease further to 1,8%. Another positive factor, public debt is estimated at around 38% of GDP in 2013. If the public deficit were to remain below 2,0% in the medium-long term, then the public debt would stabilize close to 30%. On the other hand, in 2013 the current deficit amounted to 1,1% of GDP, down from 4,4% in 2012. For 2014, the government expects the trade deficit to be around 1,2% of GDP. The imbalance in the external accounts is therefore expected to be quite contained also in 2015. It is plausible that the correction of the current deficit will be affected by the structural component due to the expected adjustment of the public finances. With a current deficit stably at 2,0%, according to Instesa Sanpaolo in the medium-long term, external debt could stabilize at 30% of GDP, in decisive correction from the current value of about 70%. From this point of view a relatively small current account deficit, if maintained in the medium/long term, facilitates the sustainability of external debt, data confirmed by a ratio between official reserves at the end of 2014 and the sum of the current deficit and cumulative maturing financial commitments estimated at 2,2, therefore higher than the unit which represents the alert threshold.
They remain positive prospects for a strengthening of Romania's economic fundamentals in the long term with the more solid economic dynamics of the Euro Area and thanks to the implementation of the reforms necessary to increase the country's competitiveness. In the medium term, the IMF expects GDP to return to growth above 3,5%. Notwithstanding the above, the significant foreign debt, equal to about 70% of GDP, still represents the greatest element of economic vulnerability of Romania. To this must be added the strong energy dependence, since Romania depends on Russia for more than 15% of its energy needs. The forecast scenario is therefore subject to downside risks associated with the current political tension involving Russia and Ukraine.
