Romanian Economy Recovers

News Brief: Apr. 2011

Romania’s GDP is expected to be on track in 2011, according to a new study by Raiffeisen International released in late March, thus marking the country’s first positive economic growth figures since the financial crisis.

When recession hit in 2008, Romania was Central and Eastern Europe’s most affected area, but “the decline in Romania’s GDP appears to have bottomed out in 2010, when it fell 1.3 per cent,” said Peter Brezinschek, Head of Raiffeisen Research. Experts predict a gradual recovery of the economy supported by increasing export demands from the international arena, contributing to a foreseeable GDP growth of 1.5 per cent.

The government’s strategy is to reduce the budget deficit from 6.5% in 2010 to 3.0% by 2012, by implementing an ambitious fiscal consolidation plan with the monetary cooperation of the International Monetary Fund (€12 billion) and the European Commission (€3 billion).

However, a rise in oil and food prices on both external and internal markets may create inflation pressures, but Raiffeisen researchers expect a significant decrease of the rate by year end. Brezinschek is convinced that “inflation will continue to be a serious challenge for the central bank and a key issue for monetary policy decisions in 2011.” The bank does not recommend supporting a drastic appreciation of the Romanian Leu, as it would have a negative impact on the country’s exports.

The effects of the ongoing global recovery is attracting foreign investors with substantial capital to Romania, for whom the country is working to off a stable and promising equity market. The strengthening of fiscal policy – with the lowering of the VAT on agriculture from 20% to 8 % and taxation of the country’s millionaires – should continue through 2011, as values on the Bucharest Stock Exchange continue to rise.

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