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10/12/2016

Romanian bank chief pessimistic about economic growth

Euro & Finance

Romanian bank chief pessimistic about economic growth

Constantin Mugur Isărescu, Governor of the National Bank of Romania

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The governor of Romania’s National Bank has announced that despite the current bright financial outlook in the country, this period of growth could be short lived. EurActiv Romania reports.

After a period of austerity and painful reforms, macroeconomic indicators look good: Romania has one of the highest growth rates in Europe, the budget deficit has fallen below 2% of GDP and the current account deficit was adjusted to 1% of GDP, with inflation staying negative.

Yet, the central bank chief warned that, “Personally, in 25 years, I have never seen greater danger to the economic and financial stability of Romania.”

“Although we had a significant increase in the minimum wage, the good macroeconomic situation is not reflected in the population or businesses. There is dissatisfaction and there is tension. Many people and many small firms are still struggling,” said Constantin Mugur Isărescu at an event in Bucharest.

Romania’s national bank reports increase in lending

The National Bank of Romania has released data that shows lending activity increased in the Eastern European country last year, as far as loans paid in lei were concerned. However, lending in foreign currency decreased by 10%. EurActiv Romania reports.

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Romania has made great progress in recent years on financial and economic stability and has achieved one of the highest growth rates in the EU. But, this stability has come at a price and might adversely affect the country’s future, said the governor, referring to fiscal relaxation measures and wage increases which will increase the budget deficit.

Prime Minister Dacian Cioloș, who also attended the same event, said that public money had been spent, but it was a question of making sure it had been well spent.

The government is aware that there is a certain amount of public expectation in terms of pension adjustments and wage increases, but those expectations should be tempered in order to maintain the budget deficit limit, Cioloș added.

“This year we must juggle certain factors, we have to manage the infrastructure budget very closely,” said the prime minister, stating that, in an election year, there are numerous legislative proposals that will put pressure on the budget.

After adjustments in recent years, Romania is respecting euro convergence criteria, but must remain alert to the risks of slippage, said Isărescu.

“We risk losing some of the progress we have made in recent years,” said the bank chief. “If we are not careful, the economy will not only stagnate, but the process of convergence will not remain on track.”