April 9 (SeeNews) - The World Bank said that due to the negative impact of COVID-19 pandemic it has sharply lowered its forecast for Romania's economic growth in 2020 to just 0.3%, from 3.8% projected in January.
"The projection is done under the assumption that growth would gradually bounce back in the second half of 2020 and further accelerate in 2021 to 4.4%," the World Bank said in its Europe and Central Asia Economic Update Spring 2020, considering data as of March 20.
According to the report, Romanian authorities acted promptly by declaring a state of emergency in mid-March and by enforcing measures restricting internal and external mobility.
"However, the risk of a recession in 2020 is substantial and growing as COVID-19 brings to a halt large segments of the European economy and disruptions to global supply chains and trade patterns. Growth will need to be substantially aided by coordinated fiscal stimulus at the national and EU levels," the World Bank said.
To address the consequences of COVID-19, the fiscal deficit is expected to widen to around 5.5% of GDP in 2020, up from a planned deficit of 3.6%, the report showed.
Additional deficit pressure comes from the new pension law which stipulates a 40% increase in pensions from September 2020.
"Once the impacts of COVID-19 dissipate, we would expect the deficit to follow a downward adjustment of at least 0.5 per-cent of GDP per year, in compliance with the Excessive Deficit Procedure of the EU," the international lender said.
According to the World Bank, in the medium term, Romania's government should focus on the fiscal policy, which should gradually be rebalanced towards mobilizing investment, primarily from EU funds to support a sustainable EU convergence path and social inclusion.
Reforms should aim to improve the effectiveness of public administration, the accountability and efficiency of state owned enterprises, and regulatory predictability, as well as to increase human capital in order to increase the economy’s growth potential and help address persistent large social and spatial divide, the World Bank recommended.
(1 euro=4.8278 euro)