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Winter forecast: CNP radically adjusts economic growth. Observations on game of deficit, exchange rate, inflationv

de Marin Pana , 12.2.2018

The National Prognosis Commission (CNP), an institution under the government authority, radically changed the economic growth for 2017, from 6.1% in last autumn forecast to 7.1%, according to the winter forecast, which has been released at the end of last week.

As data on the growth in the first three quarters of the previous year are already published by the INS, almost a doubling of the growth value for the fourth quarter of 2017 suddenly resulted from the change announced by CNP, from around 4%, or how much it would have been needed for the average of 6.1% previously announced, to 7.3%, or how much the INS would soon announce if the CNP projection will be true.

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  • Evolution of the economic growth in 2017
  • Quarter
  • Autumn forecast
  • Winter forecast

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Please note that we have used a 70% spread for the first nine months and 30% of the annual result for the fourth quarter, in line with the practice of recent years for calculating the GDP, as the reality indicates a share corresponding to the GDP in the last quarter of the year significantly higher than one quarter of the total.

All in all, we had the biggest revision of the economic growth from a historical perspective, since the autumn of 2016, from + 4.3% then, to + 7.1% today and from RON 807.4 billion, the 2017 GDP nominal value then to RON 853.2 billion now.

That is, more than the level of RON 842.5 billion used in the second half of last year, in the releases issued by the Ministry of Finance, including for the presentation of the budget deficit percentages.

According to the new GDP estimated by the CNP, it should decrease from 2.88% of GDP to 2.84% of GDP and the space available for falling within the 3% threshold by the ESA European standard increases by one-third of one billion lei.

Revision for 2018: and … also upwards

Surprisingly, although the reporting base given by the 2017 result has significantly increased, the economic growth used for drafting the 2018 budget has been already revised, ALSO upward, from 5.5% in the previous autumn forecast to 6.1% now. This is instead of 4.5%, as it would have been normal if the 2018 GDP had maintained at the level forecasted only three months ago and had been related to the new estimate for 2017.

As they continued to keep the growth rates for the period 2019 – 2020 (regardless of the increase in the economic advance between 2017 and 2018 from 11.9% cumulated for two years to 13.6%), in 15 months of successive forecasts, it has been reached to changing the 2020 GDP from RON 977.2 billion to RON 1,072.2 billion, which means a plus of almost RON 100 billion.

How to explain these increases

But how are these successive and unlikely increases can be explained in this indicators that evaluate based on a “chain reaction”?

While for the result in the fourth quarter of 2017 the trend confirmed by the practice of previous years can be invoked, according to which the evolution in the last quarter of the year would be very close to the result for the first three quarters, questions arise regarding the consumer price index and the exchange rate.

More specifically:

CNP forecasts an end-of-year inflation rate of only 2.6% at an average of 3.7%. The average seems plausible and compatible with the range estimated by BNR, namely 3.9%, 3.8%, 3.5% and 3.2% on the four quarters of 2018, but the level of 2.6% appears to be a quite a fantasy, precisely because the average is 3.7%.

Furthermore: right after the beginning of the year, the exchange rate used in the 2018 forecast has been updated, for now from 4.55 lei/euro, a value that is already ridiculous in the current context, to 4.59 lei/euro. For now, because the value of 4.46 lei/euro initially announced as the average for 2017 has been also increasing successively toward 4.56 lei.

The first two decimals have been maintained following major efforts, which can only be discreet, and the result of 4.5681 lei/euro has preserved the credibility of the authorities overall.

But replicating the history in 2018 already suggests that we are preparing for further successive re-evaluations of the average exchange rate (and may the Lord grant that it is only about ten extra bani, the same as in 2017).

Otherwise, since last fall, CNP has lost its good habit of presenting the GDP forecast in euro as well (the currency we took the commitment to adopt, sooner or later, when joined the EU). This may explain, even partially, from where the extra RON 100 billion estimated for the 2020 GDP come.

The question is whether it will still be possible to gather, in an honest way, the extra billions of lei of tomorrow with the ones of today and whether the growth rates of tomorrow will be as much linked to concrete achievements, translated into the living standard, as yesterday (a closer or more distant yesterday). This is also true for the pension and salary incomes, because, as they say, it is not always the size that means everything.

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