AcasăEurope NewsWorld Bank improves estimates on growth of Romania's economy in 2022

World Bank improves estimates on growth of Romania’s economy in 2022

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The Romanian economy should register a growth of 4.6% this year, the World Bank indicated on Tuesday in the „Global Economic Prospects” report, according to Agerpres.

The estimates are better compared to those advanced in June, in another report, when the international financial institution showed that Romania will register an advance of 2.9% this year.

Instead, the forecasts for 2023 were worsened, indicating an expansion of the Romanian economy of 3.2%, compared to an advance of 3.7% estimated in June, while the forecast for 2024 was not changed, indicating an increase of 3.9%.

The Romanian economy had an evolution beyond expectations in the first half of 2022, recording an advance of 5.8%, due to robust private consumption and early signs of investment recovery. The prospects depend on the developments of the war in Ukraine and its impact on the European economy. The fiscal deficit is on a decreasing trend, but remains at a high level. Poverty would drop to 11.7% in 2022, according to the World Bank report.

The institution appreciates that Romania has achieved an impressive success in growth and prosperity in the last two decades. However, the shock caused by the COVID-19 pandemic and the war in Ukraine have exposed the structural vulnerabilities of the economy, including persistent poverty and disparities in economic opportunities across regions and between urban and rural areas, structural rigidities in the labor market, weak fiscal policy and significant institutional constraints that affect the efficient use of resources.

The significant inflationary pressures led to the tightening of the monetary policy, after a flexible orientation. The high external imbalances add to the pressures on the exchange rate and the risk aversion of the markets. The maximum and efficient absorption of funds from the EU Multiannual Financial Framework and Next Generation, together with the reforms supported by these programs, will be crucial for a sustainable recovery and support for fiscal consolidation efforts.

Romania’s ability to absorb European funds will be critical for a sustainable, green and inclusive recovery process. Reforms and massive investments in EU programs should partially mitigate the impact of higher interest rates and uncertainties regarding private investments. Also, the European funds should alleviate some of the fiscal pressures caused by the war and the high prices of food and energy.

Until 2024, poverty would decrease to the pre-crisis level. However, high food and energy prices and the decrease in remittances could mean a longer recovery process for vulnerable population segments in the coming years. A prolonged war in Ukraine could significantly weaken growth and in the short term lead to increased poverty, warns the World Bank.

Agerpres

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