European Commission forecasts reversal of tax consolidation in Romania in 2015

Romania budget deficit in 2014 should fall to 2.1 per cent of Gross Domestic Product (GDP), from 2.2 per cent of GDP in 2013, but the fiscal consolidation should also be reversed in 2015, according to the European Commission autumn forecasts 2014 released this week.

2014-11-05 17:08:41

According to EC estimations, for 2015, Romania′s deficit is projected to increase to 2.8 per cent of GDP under a no-policy-change assumption. The forecast includes the full-year impact of the cut in social-security contributions that should lead to net loss of revenue of around 0.8 per cent of GDP over the course of 2015. A reduction in the rate of the property tax on special constructions by 0.5 percentage points is expected to lead to a further loss in revenues of around 0.1 per cent of GD, according to the same forecasts.

For 2016, the headline deficit is expected to decrease to 2.5 per cent of GDP, as revenues improve in line with improving growth prospects, again under a no-policy-change assumption. Under the same forecasts, the Romanian Government debt should increase from 37.9 per cent of GDP in 2013 to 41.1 per cent in 2015.

The European Commission also downwardly adjusted its forecasts of Romania′s economic growth in 2014 and 2015, from 2.5 per cent and 2.6 per cent, respectively, to 2 per cent and 2.4 per cent, respectively. Economic growth is expected to recover following a dent in 2014 induced by a drop in investment. Inflation should slowly pick up after a sharp decrease in 2014.

Against a background of a subdued economic scenario in the euro area, growth in Romania is nevertheless forecast to gradually pick up and stay above potential at 2.4 per cent in 2015 and 2.8 per cent in 2016. In 2013, the Romanian economy advanced 3.5 per cent, one of the highest growth rates in Europe.