After a year of strong growth in 2022, Romania’s economy is set to slow, with real GDP estimated to grow by around 2% in the coming years due to rising inflation, tightening financial conditions and the effects of Russia’s war of aggression against Ukraine, it shows autumn forecasts Commission

• Inflation will peak in late 2022 and remain high in 2023 before easing in 2024.

• Unemployment will remain at the level of 5-6%.

• The government budget deficit will gradually narrow to 4.8% in 2024 on the back of high revenues and falling current expenditure relative to GDP, mainly on the back of significant growth in nominal GDP.

• The share of debt in GDP in 2024 will be about 47.6%.

Overall, real GDP is expected to grow by 5.8% in 2022, 1.8% in 2023 and 2.2% in 2024. On the other hand, macroeconomic forecasts are negative, as delays in the implementation of Romania’s recovery and resilience plan could reduce investment. and economic growth.

Inflation has not yet peaked before gradually easing

Higher-than-expected inflation figures for the first ten months of 2022 and rising price pressures are expected to push up year-end inflation and lift annual inflation to 9.3% in the EU and 8.5% in the EU. euro zone. Inflation is expected to ease in 2023, but remain high at 7.0% in the EU and 6.1% in the euro area, before easing to 3.0% and 2.6% respectively in 2024.

This is an upward revision of almost one percentage point for 2022 and more than two percentage points for 2023 compared to the summer interim forecast. The revisions mainly reflect significantly higher wholesale gas and electricity prices, which are putting pressure on retail energy prices and most goods and services in the consumer basket.

The strongest labor market in decades will remain resilient

Despite the challenging environment, the labor market continued to grow, recording the highest levels of employment and participation, while the unemployment rate remained at its lowest level in decades. Strong economic growth led to the employment of another two million people in the first half of 2022, bringing the number of people employed in the EU to a record 213.4 million. In September, the unemployment rate remained at a record low level of 6.0%.

Labor markets are expected to lag behind the slowdown in economic activity, but remain resilient. Employment growth in the EU is forecast at 1.8% in 2022, before stagnating in 2023 and moderately approaching 0.4% in 2024.

The unemployment rate in the EU is estimated at 6.2% in 2022, 6.5% in 2023 and 6.4% in 2024.

Low economic growth, high inflation and energy support measures are weighing on the deficit

Strong nominal growth in the first three quarters of the year and the phasing out of pandemic support led to a further reduction in the government deficit in 2022, despite new measures to cushion the impact of rising energy prices on households and businesses. After falling to 4.6% of GDP in 2021 (5.1% in the euro area), the EU deficit is expected to fall to 3.4% of GDP this year (3.5% in the euro).

However, the aggregate government deficit will rise slightly again in 2023 (to 3.6% in the EU and 3.7% in the euro area) as economic activity weakens, interest costs rise and governments expand or introduce new discretionary measures to mitigate the impact of high energy level. prices Their planned withdrawal during 2023 and the restoration of economic growth should subsequently reduce the pressure on state budgets. Thus, the deficit is estimated at 3.2% of GDP in the EU and 3.3% in the Eurozone in 2024.

In the forecast period, the share of public debt in the gross domestic product of the EU is expected to decrease further from 89.4% of GDP in 2021 to 84.1% of GDP in 2024 (and from 97.1% to 91.4% in euro area).

An exceptional degree of uncertainty

The economic outlook remains marked by an exceptional degree of uncertainty, as Russia’s war of aggression against Ukraine continues, and the potential for further economic disruption is far from exhausted.

The biggest threat is negative events on the gas market and the risk of shortages, especially in the winter of 2023-24. In addition to gas supplies, the EU remains directly or indirectly exposed to further shocks in other commodity markets that react to geopolitical tensions.

Prolonged inflation and a possible disorderly adjustment of global financial markets to the new high interest rate environment also remain important risk factors. Both are exacerbated by the potential misalignment of fiscal and monetary policy goals.

Context

These forecasts are based on a number of technical assumptions about changes in exchange rates, interest rates and commodity prices based on information available up to 31 October. For all other inputs, including public policy assumptions, these forecasts take into account information available up to and including October 27. Unless a new policy is announced and properly detailed, projections assume that the current policy will be maintained.

The European Commission publishes two sets of comprehensive forecasts (spring and autumn) and two sets of interim forecasts (winter and summer) every year. Interim forecasts include annual and quarterly GDP and inflation figures for all member states for the current year and next year, as well as aggregates for the EU and the euro area.