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de Alexandra Pele , 19.10.2020

Romania’s economy will contract by 4.8% of GDP this year, according to the revised forecast of the International Monetary Fund (IMF), a slightly more optimistic evolution than previously forecasted, of -5% of GDP, according to the World Economic Outlook report, published on Tuesday.

For 2021, the IMF anticipates a GDP recovery of 4.6%, better than expected in the previous April report, of 3.9% of GDP. The projection for 2025 is a 3.5% increase in GDP.

The new IMF estimates are more optimistic than those of the World Bank, which last week forecasted that Romania will register a contraction by 5.7% in 2020.

The Minister of Public Finance, Florin Citu, stated in August that Romania will avoid the technical recession and will have a smaller contraction of the economy than public estimations of rating agencies, the European Commission, the IMF and banking institutions. The government is working with a projection of -3.8% of GDP for 2020, respectively a recovery of 4.9% of GDP in 2021.

The Monetary Fund experts expect the inflation to reach 2.9%, and the unemployment rate 7.9%, a slightly better percentage than previously circulated, of 10.1%.

The new current account deficit forecast for 2020 is 5.3%, compared to 5.5%.

A recovery above the regional average

The projection of GDP growth in 2021, of 4.6% of GDP, is above the average of the emerging and developing Europe region, of 3.9% of GDP, where Romania is included.

On the other hand, the contraction forecast for 2020 is deeper than the region’s average of 4.6% of GDP.

At the global level, the IMF expects a contraction of 4.4% in 2020, less severe than the 4.9% in the previous report. The total COVID-19 pandemic “bill” would be of USD 28,000 billion, an amount that represents the added value lost by the world economy compared to the projections issued before the outbreak of the health crisis.

“The revision reflects the developments above the expectations in the second quarter, mainly in advanced economies, where the activity started to improve faster than expected after restrictions began to be lifted in May and June, as well as the signs showing of a strong recovery in the third quarter,” the IMF underlines.

For 2021, the IMF is counting on a recovery of the world economy that would register an advance of 5.2%, slightly less than June advance forecast of 5.4%. “The baseline scenario assumes that social distancing will continue in 2021 but will gradually disappear in time as the vaccine coverage expands and treatments improve,” the IMF said.

However, the institution warns that the risks posed to the baseline scenario are “unusually high”. The IMF forecast is based on public health and economic factors that are inherently difficult to predict.

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