GDP, budget deficit and inflation

The big bets for the Romanian economy in 2022 are related to the economic growth of 4.6% on which the government relies and on which it has built its budget. Revenues should increase by 13%, with an increase in budget expenditures by 11%, so that the budget deficit reaches 5.84% of GDP.

According to Ziarul Financiar, 2022 is a complicated year for the Romanian economy. After a 2021 in which the economy performed well above expectations at the beginning of the year, a complicated 2021 follows because the advance of the economy came with its price, namely the increase of twin deficits – the trade deficit with an impact on the current account deficit and budget deficit.

Also, inflation, which at the beginning of the year, in the projection on which the budget was built at the beginning of 2021 was 2.5% at the end of the year, reached 7.8% in November and is forecast at 7, 7% by the end of the year. If the government did not come up with a cap on energy and gas prices, financial analysts believe that inflation could go above 9%. According to the forecast of the National Bank of Romania, inflation could moderate towards the second half of 2022. The government relies in the budget construction in 2022 on an inflation at the end of the year of 4.7%, with an annual average of 6.5% .

State budget revenues are estimated at 440 billion lei, up 13% from 2021, helped by inflation (state revenues from VAT, the second most important resource to the state budget, increase with inflation). The increase in revenues is considered optimistic by financial analysts, especially on the tax revenue side, where the government hopes to raise more than 10 billion lei more from better tax collection.

Romania’s trade deficit, ie the value of exports of goods vs. at the end of 2021, the value of imports reached 23.5 billion euros, a record level, which puts pressure on the national currency, with reverberations throughout the economy. In 2022, Romania’s trade deficit will reach over 26 billion euros, and there are no prospects for a reduction, at least in the short term.

In addition to all the risks and challenges of the 2022 economy, there is the influence of the health crisis across Europe. Also, the evolution of the European economy is a key factor for the performance of the Romanian economy, as the euro area is by far Romania’s largest trading partner.

(source: AFP)

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