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October 6, 2022
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World Bank Forecast: Romania’s Economy to Increase by only 1.9% in 2022

The World Bank has revised Romania’s economic growth initial forecast for 2022 from + 4.3% to + 1.95%.

Due to the conflict in Ukraine, Russian sanctions, and the refugee crisis, all expectations for the development of the Eastern European economy have been revised lower. According to World Bank predictions, the Republic of Moldova, which increased by about 14% in 2021 after a severe drop in 2020, will re-enter the recession.

Furthermore, economies that rely on Russia and Ukraine may suffer more significant losses. The most affected countries will be Ukraine and Russia. However, there will be a considerable disparity between the two, with the World Bank projecting a -11% decrease in Russia’s economy due to the sanctions implemented thus far.

World Bank Report
Photo source: World Bank

According to the report, despite supply disruptions, a significant increase in prices, and the consequences of the epidemic, Romania’s economy rebounded to 5.9% in 2021. Although recession risks from the Ukraine situation are significant, the economy is expected to grow marginally in 2022. Despite specific fiscal consolidation measures, the budget deficit is expected to remain high in 2022, at roughly 6.6% of GDP. In 2022, poverty is expected to drop slightly to 10.1%.

World Bank report
Photo source: World Bank

Food and energy costs have risen as a result of disruptions in the global supply chain caused by the epidemic and the impact of the war in Ukraine. The impoverished and marginalized demographic groups in Romania are already being disproportionately affected by the protracted epidemic due to their diminished real purchasing power and diminishing remittances. Despite the economic recovery, the proportion of Romanians living on less than $5.5 per day at 2011 revised PPP prices is expected to fall to 10.1% in 2022 from 10.3% in 2021.

World Bank Outlook on Romania

In 2022, Romania’s GDP is expected to grow at 1.9%, with risks heavily skewed to the downside. The severity of the region’s hostilities and the evolution of new COVID-19 variations will determine the strength of the recovery. Romania’s ability to absorb EU money will be vital to a long-term, environmentally friendly, and inclusive recovery. According to government estimates, the Resilience and Recovery funds will add about one percentage point to Romania’s real GDP growth per year between 2022 and 2026, assuming 100% absorption. On the other hand, low historical absorption rates indicate significant headwinds for a high absorption scenario. The embryonic recovery is being tested by significant inflationary pressures from the energy and food markets, necessitating a careful balancing act from the National Bank of Romania.

By 2024, poverty is expected to return to pre-crisis levels. However, rising food and energy prices and decreased remittance incomes may cause vulnerable demographic segments to take longer to recover in the future years than others. A lengthy conflict in Ukraine, on the other hand, may push growth into negative territory and, in the short term, worsen poverty.

Romania is strongly affected by external factors such as the pandemic, the war, and rising prices. These effects will be felt throughout 2022 if they aren’t already felt by now. The following decisions in the Romanian economy will be extremely important to mitigate these negative effects on the population.

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