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WB Report: Real GDP growth of 7.3% in Romania this year

October 24, 2021

Economic activity in emerging and developing economies in Europe and Central Asia (ECA) is expected to grow 5.5 percent in 2021, fueled by a stronger-than-anticipated recovery in domestic demand as the region gained more widespread access to vaccines, says the latest ECA Economic Update conducted by the World Bank.   Firming external demand from the euro area has supported the rebound, bolstering export growth and remittance inflows in ECA, the report further says. Growth is expected to moderate to 3.4 percent in 2022, as the boost from external demand fades alongside plateauing global growth and easing commodity prices. The near-term outlook in ECA has been dampened by a faster-than-anticipated removal of monetary policy accommodation, as above-target inflation in many economies prompted central banks to increase policy rates. Despite the strong recovery, per capita income in 2022 is projected to remain 1.5 percent below pre-pandemic projections. Risks to the outlook are markedly tilted to the downside. The outlook remains highly uncertain given the continuation of the pandemic amid low vaccination and high vaccine reluctance in some economies. The recovery in regional activity has been accompanied by a rapid acceleration of inflation. Price pressures have been further exacerbated by global supply disruptions and shipping bottlenecks. In an environment of sustained, above-target inflation, a sharper erosion of investor sentiment could abruptly tighten financing conditions and lead to cascading defaults and rising nonperforming loans. Political uncertainty and geopolitical tensions also remain a downside risk that can contribute to financial stress.   Eastern Europe The economic activity in Eastern Europe was buoyed by improving external demand in early 2021, which helped underpin a robust rebound in industrial production and partly offset the drag from macroeconomic tightening, according to the WB report. In Ukraine—the subregion’s largest economy—services activity benefited from a temporary easing of COVID-19 restrictions. Rising wages boosted household incomes in Ukraine and Moldova, which helped buoy private consumption. Above-target and accelerating inflation, especially in Ukraine, triggered policy rate hikes in all three economies in 2021. In the near term, growth in Eastern Europe is projected to rise to 3.1 percent in 2021 before nearly halving to 1.6 percent in 2022. Near-term activity is expected to be dampened by slowing growth in exports and private consumption in some economies. However, a gradual improvement in domestic demand should help lift growth by 2023. The outlook, particularly for private investment, remains clouded by ongoing geopolitical and domestic political tensions in Ukraine and Belarus, with the latter facing newly imposed sectoral economic sanctions. Longer-term growth prospects are also constrained by continued challenges related to slow reform momentum, which has hindered competition and private sector development.   The WB forecast a real GDP growth at market prices in percent for Romania of 7.3% this year, after it stood at 4.1pc in 2109 and it decreased in 2020 – 3.pc. Next year the GDP growth is expected to be 4.8pc in Romania and 3.9pc in 2023.  

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