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EC warns Romanian economy will dramatically stagnate

Economic growth will be of only 1.75 pc in 2009 and 2.5 pc in 2010 compared to 7.8 pc in 2008. Budget deficit may reach 7.5 pc of the GDP.

The economic and financial crisis that has already caused recession in some of the member states will badly affect Romania this year and will further misbalance fiscal equilibrium, a severe slow-down of the economic growth to 1.75 per cent being expected, reads the 2009-2-10 economic forecast the European Commission published in Brussels on Monday.

The document also estimates ‘record' values for the budget deficit - 7.5 per cent of the gross domestic product in 2009 and 2010, the year when the EU Executive expects a slight recovery of the EU economy. Brussels believes that, under all those conditions, Romania will have major difficulties in reaching the desired budget revenue rate.

Last year, the public deficit was 5.2 per cent of the GDP, meaning the European standard (ESA95).

Under the conditions, says the European Executive, the Romanian Government will have to resort to massive borrowing, which will increase public debt to up to 21.1 per cent of the GDP in 2009 and 26.8 per cent in 2010, compared to 15.2 per cent of the GDP in 2008 and 127 per cent of the GDP in 2007. Another sector that will be affected, according to the Commission, is foreign trade, where there is a risk for export to only grow by 1.3 per cent in 2009 and for import by 1.7 per cent, whilst domestic demand will only increase by 2.2 per cent in 2009 compared to 11.4 per cent in 2008 or 15.7 per cent in 2007.

There is also good news coming from Brussels - the current account deficit will drop from 12.9 per cent of the GDP in 2008 to 11.9 per cent in 2009 and to 11.1 per cent in 2010.

Moreover, says the EC, inflation is expected to stay at around 5.7 per cent in 2009 and 4 per cent in 2010, less than 7.9 per cent last year, all data being calculated based on the harmonized consumer price index, the EC prognosis further shows.

On the other hand, unemployment will grow to a rate of 7 per cent in 2009 compared to 6.2 per cent in 2008, all calculations being performed in keeping with the International Labour Bureau standards.

According to the Commission's estimates, international economic activity considerably dropped in the last quarter of 2008, smaller numbers of orders having been registered. European experts also think economic recession will spread and will have bad consequences upon emerging economies. The world GDP growth will slow down in 2009 to 0.5 per cent compared to 3.3 per cent in 2008 and to the outstanding 5 per cent average recorded in 2004-2007. Starting from the latter half of 2009, world economic growth should become increasingly visible but at a moderate pace, with the improvement of the situation on the financial markets and with the effects of the more flexible macroeconomic policies becoming visible (especially in the USA).

Surging unemployment and deficits

The Commission says the employment situation in the EU is worse than it was in 2008, with an expected negative growth of employment this year and with a loss of 3.5 M jobs.

This will lead to a growing unemployment rate of up o 8 per cent in the EU (and 9 per cent in the Euro zone) in 2009. The degradation of economic prospects should have negative effects upon public finance which will also have to suffer from the reversed trend of additional revenue compared to the previous years, of a structure that will be generally based less on taxes and of the effects of important discretionary measures adopted or announced by the member sates (representing approximately 1 per cent of the GDP of the EU in 2009 when the forecast was completed). The global deficit will therefore register a double-fold growth in the EU this year to 4.5 per cent in 2009 (the ratio being nearly 1.75 to 4 per cent in the Euro zone).

UNCTAD more optimistic than the EC

Romania will register 4.3 per cent economic growth in 2009, after a pace of growth of 8 per cent reported in 2008, according to the estimates of the UN Conference for Trade and Development (UNCTAD) published at the week-end, which are more optimistic than those of the European Commission. UNCTAD also forecasts that inflation will reach 5 per cent this year after 8 per cent in 2008. The unemployment rate in this country which UNCTAD forecasts at 6.8 per cent in 2009 will stay close to the level of 7 per cent set for the previous year.

CNP estimates 7.9 pc GDP growth for 2008

The National Prognosis Committee (CNP) estimated, in their last analysis published on Monday, that the GDP registered a rise of 7.9 per cent last year, totalizing RON 513,175 billion (EUR 139,35 billion), an advance slightly higher than the one of 7.8 per cent calculated by the Government and by the European Commission, according to Realitatea TV. For 2009, CNP expects an economical increase of 2.5 per cent, and these values were already taken into account by the Government for budgetary projections.

Pogea: EC prognosis - wrong

The forecast by the European Commission (EC) over Romania's budget deficits of 7.5 per cent GDP and 7.9 per cent GDP in 2009 and 2010 respectively is wrong, and government maintains its target of reducing deficit to 2 per cent this year, from about 5 per cent in 2008, Finance Minister Gheorghe Pogea said. ‘Not at all. The Commission may have used for calculations the budget figures used in the draft law put before parliament by the former government,' Pogea said. A 2 per cent GDP deficit is within reach by cutting costs in the public administration and rising revenues, he also said. ‘Our top priorities for 2009 will be adjusting the deficit of the budget and of the current account to levels that are sustainable. We will focus all our efforts towards reaching a budget deficit of 2 per cent in late 2009,' Pogea said.

Videanu: Our economic growth rate target is 2.5 pc and deficit of up to 2 per cent

Economy Minister Adriean Videanu yesterday stated that the Government's target was to prepare a budget illustrating an economic growth rate of 2.5 per cent and a deficit up no more than 2 per cent. That was his answer to the prognosis published by the European Commission (EC), Mediafax informs.

‘If we had irresponsible governance, we may reach a deficit of 7.5 per cent. But the budgetary constructions that we are making is around a budget deficit of up to 2 per cent, so that Romania can regain its credibility,' Adriean Videanu said.

He pointed out that the first ‘exam' the Government would have to pass was the budgetary construction. ‘Romania has borrowed money at unjustifiably high costs in the past, that is why it is now a problem to finance the public deficit', Videanu explained.

He said that the difference of opinion between the Government's estimates and the EC forecast could be explained by ‘the differences of perspective' on revenues and expenditures. ‘We believe that out current target, 2.5 per cent economic growth rate, is a realistic one and based on the correct value of the participation of all sectors, industry, agriculture, services, to the GDP,' Videanu added.

Adrian Vasilescu: EC's appreciations are pessimistic, yet not tough

The Romanian economy is an equation with several unknowns, and it is normal for it to be looked at with uncertainty, with pessimism, but these unknowns must be dealt with very fast, said Adrian Vasilescu, adviser to the BNR Governor. ‘It is normal that, in this current situation of international crisis, Romania should be regarded with pessimism. I think confidence needs to be regained, not only the confidence of the rating agencies, but the confidence of the international economic community, in our club, the European Union. We do not have a budget yet, we've just had election, the political power has changed, the Government has changed. These things become aggravating circumstances in combination with the crisis,' Adrian Vasilescu told Agerpres.

‘We should not be pessimistic; we must continue to be cautious. The appreciation of the Commission is pessimistic. It is not tough', Vasilescu added.

Daniel Daianu: EC estimates on budget deficit rely on uncertain data

The estimates by the European Commission over Romania's budget deficit for 2009 hinge to unsure data, MEP Daniel Daianu told The Money Channel TV. In Daianu's view, officials in Brussels took into account electoral promises made last year and lower budget revenues.

"I think the rationale by EC experts went like this: not only that incomings are dwindling but the collection of certain reasonable-level revenues is also slowing down by the day, and, on the other hand, we made pledges and I don't refer only to parliamentary promises. I have in view the almost unanimous vote cast by parliament over pensions rising by nearly 50 per cent. Those at the EC can do nothing but take into count the data available so far. The EC has therefore had but some certain data and others that are quite uncertain,' MEP Daniel Daianu said.

Ionut Popescu: Romania cannot register economic growth in 2009

Romania cannot report economic growth in 2009, given the evolutions in late 2008, according to most recent statistical data, economic analyst Ionut Popescu, economic adviser to Premier Boc and former Finance Minister, told Agerpres.

Popescu held the prognosis as ‘quite realistic' even if it envisages a growth rate lower than the 2.5 per cent the Ministry of Public Finance (MPF) took into count when establishing the 2009 budget.

‘Personally, I believe the EC prognosis over Romania's economic growth as quite upbeat. I don't think we will have any economic growth in 2009. Having read the statistical data for November, I don't see how we could have economic growth this year, the adviser to Premier Boc said.

As to the EC prognosis on a budget deficit of 7.5 per cent GDP, Popescu considered that level as way too high.

 

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Tags: public lsquo estimates government according videanu finance prognosis romanian commission growth economic economy european compared romania budget deficit bnr euro

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