December 11 (SeeNews) - Erste Group said on Tuesday it expects Romania's economy to grow by a real 4.3% in 2018, as fiscal stimulus starts to wear out.
In its previous forecast made in September, Erste said Romania's economy would expand by a real 3.8% this year.
"Our scenario of an economic slowdown was confirmed in 2018, when the effects of the fiscal stimulus started to wear off and clouds gathered for global trade. This trend will continue into 2019 and we foresee economic growth at 3.4%, down from an estimated 4.3% in 2018," the Austrian banking group said in its latest macroeconomic outlook on Romania on Tuesday.
Romania's economic growth slowed to 4.3% in the third quarter of 2018, from 8.8% in the like period of 2017, non-adjusted provisional data of the country's statistical board INS indicate. Final household consumption volume rose by 3.8% in the third quarter.
"Much depends on the orientation of fiscal policy in 2019 and we do not rule out the possibility that the government will try to buy some time by postponing fiscal consolidation measures as much as possible, especially if one considers that next year will bring two rounds of elections (European Parliament and presidential)," Erste analysts added.
Economic growth of 4.5% and budget deficit equivalent to 2.96% of GDP are forecast in Romania's 2018 state budget.
Romania's economy expanded by 6.9% in 2017.
The analysts said they see Romania's inflation at 4.6% in December 2018. Romania's annual consumer price inflation decelerated to 3.43% in November from 4.25% in the previous month, INS data showed.
In November, BNR affirmed its annual inflation forecast for 2018 at 3.5%, at the upper end of its target band of 1.5-3.5%.
"We see the inflation inside the target in 2019 with temporary upside pressures at beginning of next year explained by increases in excise taxes for tobacco, alcohol, fuel and energy," analysts said.
Regarding the monetary policy of BNR Erste analysts said they have revised their forecast for the policy rate in 2019 and see no hike in the horizon.
"Besides lower-than-expected inflationary pressures and the slowdown of domestic demand, we think that recent weakness of Eurozone economy which was visible in real GDP data for the third quarter of 2018 and also in PMI [Purchasing Managers' Index] indicators would make the ECB [European Central Bank] more cautious in raising rates. As a result, the BNR would have little reasons to hike the policy rate due to the external environment," Erste analysts opined.
In November, BNR maintained its monetary policy rate at 2.50%. BNR last changed the rate in May, increasing it to 2.50% from 2.25%, the third rate hike this year.
Erste Group owns Banca Comerciala Romana, Romania's top bank by assets.
(1 euro = 4.6528 lei)