CNSP downwardly adjusts to 2pct estimated Romanian economic growth in 2023

The National Economic Strategy and Forecasting Board(CNSP) has downwardly adjusted its conomic growth estimate for Romania in 2023 to 2% from 2.8% as a result of declines in industry and unexpectedly weak agricultural yields."The macroeconomic developments of the first half of the year and of the sectoral indicators January to August 2023 show a wider deceleration of economic growth for the year 2023 (+2.0%) than that estimated in the previous forecasts (+2.8%). Influencing the downgrade was industry, which did not manage to reduce the amplitude of the contraction, and unexpectedly weak results in agriculture, as high temperatures as well as precipitation below the average limits led to reduced yields for some crops such as corn and sunflower. Thus, the dynamics of gross added value in industry is estimated to decrease to -3.1% from -0.2% in the summer scenario and for agriculture the revision is significant, to a moderate increase of 1.8%, compared to 10.6% in the summer forecast," according to the CNSP autumn version of its 2023-2027 medium-term forecast.On the supply side, economic growth in 2023 will be supported by construction and services, which gross added value will increase by 7.8% and 3.1%, respectively. It is worth noting a significant development in the construction sector in January-August 2023 (+13.2%), which led to a dynamic that exceeded expectations for the whole year. The positive contribution of the two sectors will be diminished by the contraction of the industry (-3.1%) amidst a loss of competitiveness and weakening domestic and external demand.On the demand side, there is a consistent contribution to economic growth by gross investment. Estimates for the construction sector will be reflected accordingly in the dynamics of gross fixed capital formation, which is expected to advance 0.9 percentage points over the previous forecast. Thus, the gross formation of fixed capital will have a contribution of 1.9 percentage points to the growth of the gross domestic product, which will materialise in an investment rate of 25.2%.CNSP says that public consumption is estimated to decline 0.8 percentage points. The downward trend, manifested both in the purchase of goods and in the services intended for the population, was influenced by a prudent behaviour of households as consumer loans increased and savings followed suit.Overall, domestic demand will be significantly reduced by a negative contribution brought by the variation in stocks, estimated to be 2.2 percentage points.The contribution of net export to GDP growth is estimated to be 0.6 percentage points as a result of a wider contraction in the case of the import of goods and services, by 4.2 percentage points as against the previous forecast, which means a reduction in real terms by 0.5%.Inflation estimates for 2023 were affirmed at 7.4%, with a marginal deviation of only 0.1 percentage points being recorded for the annual average (10.5%).Instead, the forecast of the current account deficit (7.1% of GDP) required a downward correction of one percentage point as a result of a higher narrowing of the trade deficit in goods than previously estimated.For 2024, the GDP was also downwardly adjusted by 0.8 percentage points, to 3.4% growth as a result of a slower recovery of the industrial sector and external demand amid high uncertainty about international geopolitical tensions and a more prudent consumption by households.