In its latest 2010 global economic outlook, the EBRD said Romania’s recent fiscal consolidation measures agreed with the International Monetary Fund, which include a 25% pay cut in the public sector and a five percentage point increase in the sales tax, will further dampen domestic demand in the short term.
For 2011, EBRD cut its growth forecast on Romania to zero from 3% initially.
EBRD also revised slightly downward its forecast for global economic growth to 3.5% this year from 3.7%, noting that a deteriorating external environment following fiscal austerity plans in many advanced countries could offset the strong activity in the first half of the year.
Economic recovery is anemic in most of southeast European countries, EBRD said, as a pickup in industrial production and exports is more than offset by falling consumption.
„External financing gaps have declined significantly over the past year, thanks to strong EU and support from international financial institutions and the continued commitment of foreign banks, but FDI shows little sign of recovery after a sharp drop in 2009 across the region,” EBRD said.
The lender envisages the region’s economy will contract 1.5% this year, down from a 0.3% initially predicted.
„Fiscal challenges remain daunting, especially in light of the continued slow pace of recovery. Countries with IMF-supported programs will be hard-pressed to meet their program targets this year,” EBRD said.