OTP Bank Romania : Economic recovery will slow down in  2022, as inflation erodes real income

Economic recovery will slow down substantially in 2022, as the GDP increase is estimated to be under 2% this year, as inflation erodes the real income, the monetary policy will tighten and the issues of supply chain could develop, according to the OTP Bank analysts.   OTP Bank released a press release Friday, assessing that given the performance of economic recovery, statistical data show that Romania had surpassed its pre-pandemic level, but by the end of the second quarter of 2021 it reached about 2% below the pre-pandemic trend.   The analysts of the bank say that, over the last months of 2021, ‘ Romania regressed from the second to the fourth most performing country in the region of Central and Eastern Europe, after Serbia, Poland and Hungary, depending on  the level of GDP before the pandemics.’.    ‘At the same time, the statistic data for January-February suggest slight progress, while the conflict Russia-Ukraine damages the perspective. Although the commercial relations are moderate, the higher prices for energy, the slow growth of the euro zone and the increase of the risk premium will affect the activity and will feed the growth of inflation’ the OTP Bank analysts said.   As a result, according to them, the estimation for economic growth for Romania for this year will be under the medium as compared to other economies in the region, while the need for fiscal consolidation is more acute than in other countries in the Central and Eastern Europe, due to the fact that Romania is in procedure for excessive deficit.   The inflation continued to grow constantly and was fed by the shock of the prices for energy and food, went up to 8.5% in February, while the inflation was 5.2%.  ‘As the government had a ceiling for the energy prices for next year, we do not expect a new increase for energy prices until the spring of 2023.At the same time, costs with energy for the companies could go up and the conflict between Russia and Ukraine could contribute to these pressures on the food prices. Thus, we estimate a peak of inflation of 9.5% for the period April-May, with good chance to see a gradual slowing down’ the OTP Bank analysts said.   In order to combat this situation, the central bank continued to increase the reference rate. ‘Besides other measures for the strenghtening of the monetary policy, it is likely that the National Bank of Romania will continue with such increase, so that the interest rate could reach the level of 4.5% until the end of this year’ OTP Bank said.   According to the banking institution, in an extended macro-economic context, the work market and the level of occupancy recovered after the Covid crisis, and the general increase of salaries came back slightly over the last months of 2021, although the inflation reduced much of the real purchasing power.    ‘Taking into consideration the global and regional evolutions, we see risks as regards the slowing down of the GDP increase, while the perspective regarding inflation and the interest rate show future increase’ the OTP Bank analysts say.