The Romanian leu was hit at the start of 2017 as anti-corruption protesters took to the streets. Economists see mild depreciation risks to the leu arising from uncertainty over the government’s fiscal stance, competitive pressures, a growing current account deficit and political tensions. These factors could increase government borrowing costs and weigh on the exchange rate.
Romania’s economy grew faster than in any other EU country in 2016 on the back of increasing private consumption, which was boosted by tax cuts and wage increases. Fresh stimulus in 2017 is forecast to continue to support growth above 4 per cent, but economists expect the rate of expansion to moderate in the second half of 2017 and further in 2018 as fiscal loosening wanes and both exports and investment remain sluggish.
In 2017, Romanian energy price hikes, significant wage increases and further tax cuts are expected to produce inflation above 1 per cent. Romania’s central bank has raised its inflation forecast and expects the rate to reach 3 per cent by 2018, as the government introduces further public sector wage hikes.
Romania’s current account deficit widened in 2016, reflecting a pickup in imports of goods arising from increased disposable income. In 2017, the trend is expected to intensify as rapidly increasing wages continue to outpace productivity growth. Economists forecast the current account deficit will remain above 2.5 per cent in 2017: Ratings agency Fitch estimates it will widen to 3.1 per cent, though even this would be lower than a pre-2013 average rate of 3.7 per cent of GDP.