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Romania's economic restart not any sooner than 2011

The restart of Romania's economy will not occur any sooner than 2011, as the floods and VAT hike caused it to fall by almost one percent of GDP, Minister of Economy, Trade and Business Environment Adriean Videanu on Friday told the public radio station.

'If it hadn't been for the floods that bit off almost one percentage point of the GDP - the precise assessment is now being done - and if we hadn't been forced to increase the VAT, I think we could have spoken of an economic restart as of Q3 this year. But given these two unpredictable elements, which are out of the government's control, I believe that the economic restart will occur only as of next year,' said Videanu.

He explained that the temporary reduction of public sector wages and pensions were the best fit measures for attaining the fiscal balance of the budget, better anyway than hiking taxes.

'The damage caused by the VAT raise spans 3-4-5 months, triggering an increase in inflation and a reduction in consumption; no more adverse effects are likely to occur beyond this horizon, but this also postpones economic growth. This is the area talks and analyses focus on. From my point of view, the solution to temporarily reduce public spending until December 31, 2010 was balancing the aggregate budget, but following the decision of the Constitutional Court, we decided to raise the VAT, which now delays the resumption of economic growth by a few months, maybe a year. I would have preferred a cut in public spending in order to reach a fiscal balance and this way we could have returned to the same incomes in six months, because elements were in place for the major growth of GDP. These were painful measures, but intended just for the short term and several problems could have been solved in that interval, specifically slimming down the public apparatus and introducing the Law on the uniform public pension system,' said Videanu.

Romania's economy will probably shrink by at least one percent in 2010, more than previous forecasts, Finance Minister Sebastian Vladescu declared on June 29. The IMF and the government estimate that the GDP will contract by as much as 0.5 percent after a record-high growth of 7.1 percent in 2009.

Sursa: http://www.actmedia.eu

Tags: public restart economic romanias

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