Favourable macro-economic outlook over the next four years October 16, 2006 / Bucharest Daily News
Bucharest – The experts of Ministry of Public Finances (MFP) anticipate that Romania’s economy will continue the good growth rate over the next four years, remaining for most of the macro-economic parameters to be improved or enhanced.
Based on MFP report addressing macro-economic situation for 2007 – 2010, Romania’s Gross Domestic Product (GDP) will continue to post a growth rate of more than 5 per cent, but its trend is expected to be a downward one. Thus, from an economic growth of 6.4 per cent expected for next year, GDP would growth rate would decrease to 5.6 per cent in 2010. According to MFP, GDP growth in 2007 will be backed mainly by the favorable evolution of services and constructions. Regarding the time period 2008 – 2010, GDP average growth will be 5.9 per cent, against the background of improved internal and external economic competitiveness, which will result in a high export pace, in production matching better demand and in reducing the share of the current account deficit within GDP, based on MFP report.
Regarding finances, the forecast indicates an improvement in the imbalance currently posted by the current account deficit, which exceeded 10 per cent of GDP, by almost two per cent over the estimations of the authorities. As MFP indicates, the forecast indicates a stagnation in the current account deficit over the next four years from 8.7 per cent, which is the level expected in 2006. In 2007, the current account deficit is expected to slightly decrease to 8.6 per cent, and in 2008 and in 2009 this will return to 8.7 per cent, whereas in 2010, it is expected to decrease to the level forecast for this year. According to MFP, the current account deficit will continue to be backed by direct investments, capital transfers and portfolio investments in a share of 80 per cent, remaining for the surplus of net current transfers to partially offset the impact of the trade deficit.
2.5 pc inflation in 2010
Regarding the evolution of the inflation rate, authorities expect it to gradually decrease over the interval 2007 – 2010, going down from 4.5 per cent in 2007 to 2.5 per cent in 2010. MFP estimation is based on the trend of investments recovering in Romania but also on the consolidation of the disinflation process started in 2006. The slowdown in prices will continue over the next years, the level being 3.5 per cent at the end of 2008, and then it will reduce to 3 per cent during next year. The inflation target for 2007 was set by National Bank of Romania to 4 per cent, plus/minus one per cent, and to 3.8 per cent for 2007, with the same variation range.
Public debt will also post a controlled growth over the next years, but its share in GDP is expected to lower, considering a high economic growth rate. The public debt level was indicating EUR 15 bln. at the end of the first semester, but foreign credits were accounting for 75 per cent of the total debt. The value of the debt corresponds to 20 per cent of GDP, a value that is low compared to the EU standards, which set a maximum share of 60 per cent of GDP. MFP estimates that in 2007 the expenditures incurred by the interests corresponding to internal public debt will be 0.3 per cent of GDP. In addition, the external governmental public debt estimated for end of next year to 11.5 per cent of GDP is expected to advance in 2008, following the State redeeming an issue of Euro-bonds worth EUR 600 M. Finances estimate that the share of the public Governmental debt within GDP registers, over 2008 – 2010, a slight decrease due to the economic growth and to falling within the 3 per cent of GDP budgetary deficit limit.
The budgetary deficit held at less than 3 pc
The budgetary deficit is expected to have a downward trend over the reference interval, being constantly under 3 per cent. “The figures related to the budgetary deficit indicate that the fiscal – budgetary policy pursued on medium term will target the objective of securing funds for the development programmes, without exceeding the reference value of 3 per cent of GDP, registered in the Protocol on the procedure in case of excessive deficit”, based on the report.
The revenues to the general consolidated budget over the time interval considered will increase from 35.2 per cent of GDP, a level proposed for next year, to 37.7 per cent of GDP in 2010. Expenditures will also follow an upward trend, increasing from 38 per cent of GDP in 2007 to 39.7 per cent of GDP over four years. Considering a breakdown in the revenue sources to the state budget, MFP anticipates that the level of the profit tax contribution, as a share in GDP, stabilise, VAT decrease its growth rate over medium term and the excise duties, as a share in GDP, continue to advance considering the compliance process with the EU legislation.
5.3 pc unemployment rate in 2010
The average number of employees will increase in the next four years so that the unemployment rate reduces from 5.6 per cent in 2007 to 5.3 per cent in 2010, based on the same report. In 2008, the unemployment rate is expected to be around 5.5 per cent and 5.4 per cent in 2009.
The share of employees within total occupied population will advance in 2007 by almost one per cent, to 58.4 per cent, and the average number of employees will increase by 85,000 persons, according to MFP report.