A possible trade war between the US and the European Union will generate recession and then things will get even more complicated, because Romania is already entering a period of demand deficit, governor of the National Bank of Romania (BNR) Mugur Isarescu said on Monday at a conference presenting BNR’s Quarterly Inflation Report.

„In Europe, there will not only be an inflationary impact. I think an eventual trade war will generate recession and then things get even more complicated, because, you see, we are already entering with certain current data – because that is how we make the forecast – we are entering a time of demand deficit. So, from a surplus, from inflationary pressure, we are entering a period of demand deficit, that is, a downward influence on price growth and a rather negative impact on economic growth. I have told you, however, that the negative impact on economic growth depends on the quality of the factors that contribute to economic growth. Last year, we had a massive increase in consumption and it did not go into economic growth, it went into imports. This year, even if consumption stagnates or grows very little, an increase in the absorption of European money and investment based on European funds can lead to economic growth. Otherwise, there would be a few coordinates that I see clearly. The rest I don’t see clearly and I don’t think you see what the impact of a trade war is. Anyway, it’s not good,” said Isarescu.

Regarding a possible cut in the monetary policy rate in the second half of the year, the governor said that „we are not discussing it now”, so as not to create expectations that, eventually, the BNR will not be able to meet.

Isarescu on Monday released the BNR Quarterly Report on Inflation. According to the updated forecast, the annual inflation rate will fluctuate markedly in H1 2025 – amid the two-way base effects that will be manifest over this time horizon – before declining in H2 on a higher path than in the prior projection, staying above the variation band of the target until end-2025.

Uncertainties and risks further stem from the future fiscal policy stance, given on one hand the presumed impact of the corrective fiscal and budgetary measures implemented or adopted so far and, on the other hand, the budget consolidation requirement according to the National Medium-Term Fiscal-Structural Plan agreed with the European Commission and to the excessive deficit procedure.

AGERPRES