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Cronicile

BNR forecasts lower economic growth than Government. Explanation: different “macroeconomic model”

de Razvan Diaconu , 12.2.2017

The National Bank of Romania (BNR) forecasts the economic growth between 4% and 5% in 2017, based on its macroeconomic model; its estimation would have no relevance “to the budget approach,” said Thursday Mugur Isarescu, Governor of the Central Bank.

“The forecast based on our model is confidential, we cannot mention it, but it is somewhere between 4 and 5%. It has no relevance to the budget approach, do not consider them counterparts as that would create another problem for the society! This is a forecast related to our macroeconomic model,” explained the Governor of BNR.

The state budget has been drafted based on an economic growth estimated at 5.2%, as the National Prognosis Commission has rectified at the last minute the initial estimation of 4.3% announced in its autumn forecast.

The GDP growth of 5.2% on which the Government based the 2017 draft budget is considered overly optimistic by most analysts. The European Commission estimates an economic growth of 3.9% in 2017 and a budget deficit of 3.2%, according to its autumn forecast.

The International Monetary Fund has forecasted the economic growth at 3.8% and the World Bank at 3.7%, the same level as the European Bank for Reconstruction and Development (EBRD). Erste Group limits its estimation at a GDP growth of 4.3% in 2017 and 2.8% in 2018, Berenberg at 4.4% and the EIU at 3.6%.

Mistakes are possible

Moreover, according to BNR’s calculations, “the confidence in the economy is approaching the level of 2007 – 2008 and I do not mention that as a forecast, under any circumstances and make no suggestions,” said Mugur Isarescu to avoid any possible comments that might argue that the confidence in 2008 ignored the signs of crisis that had already been felt at the moment.

The Governor of BNR also suggested that any forecast is likely to be altered by error. “We also were wrong with the inflation forecast for one and a half years, as the inflation was much lower. I do not believe that many analysts are confident in our forecasts when you are wrong. This is how the forecasts are. We are operating in a market economy and have a lot of factors involved,” said Mugur Isarescu.

So, the Central Bank revised down by 0.4 percentage points the inflation forecast for the end of this year, to 1.7%, according to the statement made on Thursday by Mugur Isarescu, the Governor of the Central Bank, on the occasion of presenting the Quarterly Inflation Report.

For the end of next year, the Central Bank estimates an inflation of 3.4%, 0.2 percentage points above the previous forecast and the target is 2.5% +/- 1 percentage point.

“Prices of raw materials are consolidating their upward trend. This trend continues, although it seems not so sharp,” said Mugur Isarescu, according to the video posted on the BNR website.

Loan demand maintained “robust in lei”, although it has been affected by the “uneven progress of the First Home programme”.

The BNR Board of Directors decided on Tuesday to maintain the key rate at 1.75% per year and the reserve ratios (RRs) at 8% for lei and 10% for the foreign currency, as most analysts have anticipated.

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