Macroeconomic perspectives for Romania in 2022

We are approaching the end of another atypical economic year, characterised by a lingering health crisis, economic recovery and accumulating challenges, including rising inflationary pressures, rising commodity prices and political tensions.

However, Romania's economy has shown resilience to the impact of the pandemic and the consequences of this health crisis (unprecedented globally in the last century), as well as to this year's set of adjacent challenges. This resilience of the domestic economy is mainly determined by the improving contribution of factors of production to the annual dynamics of potential GDP, according to the econometric estimates developed.

For 2022, we expect the Romanian economy to grow at a slightly above potential pace of 5.2%, but decelerating compared to the dynamics in 2021 (6.2%). This scenario is supported by the favourable outlook for productive investments, with a driving impact on the other components of GDP.

Thus, the economy's engine could accelerate from 7.6% in 2021 to 10% in 2022, on the back of the reduced level of real financing costs and the implementation of programmes launched by the European Union after the health crisis (Next Generation and the Multiannual Financial Framework 2021-2027).

The accelerating growth of productive investments will contribute to the improvement of the labour market climate - the average annual unemployment rate will decrease from 5.2% in 2021 to 4.8% in 2022.

According to our central scenario, private consumption (the main component of GDP) could decelerate from 6.9% in 2021 to 5.5% in 2022, influenced by the dissipation of the base effect (caused by the restrictions introduced to counter the health crisis).

For public consumption, we forecast an acceleration from 0.3% in 2021 to 3% in 2022, strongly influenced by the implementation of the National Recovery and Resilience Programme.

On the other hand, at the level of net external demand, we expect the annual rates of exports and imports to decelerate in 2022 to levels of 4.5% and 7.2%, respectively, due to the dissipation of the base effect generated by the introduction of restrictions.

For consumer prices (on the EU harmonised index), we expect the average annual pace to accelerate from 4.1% in 2021 to 5.1% in 2022, driven by recent supply shocks in a context of post-pandemic economic recovery.

However, in the BT scenario we forecast a deceleration in the annual dynamics of consumer prices starting from the first part of 2022 and convergence towards the level targeted by the National Bank of Romania by the end of 2023, a development determined by the dissipation of supply-side shocks and the measures implemented by the central bank (post-pandemic monetary cycle initiated in 2021).

In our central scenario, we expect the NBR to continue this cycle in 2022, by increasing the monetary policy interest rate and widening the corridor of interest rates on standing facilities around the reference interest rate.

For the interest rate on 10-year government securities (the barometer for the cost of financing in the economy), we forecast an average annual level rising to 5.2% in 2022 (from 3.7% in 2021), against the background of the outlook for monetary policy (US and Romania) and the forecast for the annual pace of nominal GDP.

Last but not least, in the foreign exchange market, we forecast a continuation of the gradual upward trend for EUR/RON towards an average level of 5 in 2022 (up from 4.92 in 2021).

We stress that Romania will continue to face persisting twin deficits in 2022, but we forecast an adjustment of their share in GDP, a scenario supported by the accelerating outlook for structural reforms.

At the end of this analysis we draw attention to the risk factors to the evolution of the domestic economy in 2022, including the possibility of a severe deterioration of the international financial market climate (after the strong rise in stock market indices over the last quarters), the persistence of the health crisis, the domestic political climate and the regional geo-political context.

Forecasts for the evolution of macro-financial indicators in Romania

Source: BT forecasts using Eurostat, NSI, NBR, Bloomberg data

Editor: dr. Andrei Radulescu, Director Macroeconomic Analysis, Banca Transilvania