WOOD Flash – Romania macro: economy ends the year on a strong note

The December surveys from the European Commission underscore that the economy is slowing, but is still carrying significant momentum, which may present upside for our GDP forecast of 0.5% growth for this year. We argue that Romania is in a better position than its peers to dodge a slowdown this year, and the surveys suggest that the economy has ended the year on a strong note. The monetary tightening delivered by the NBR has been calculated and has further to go, in our view, as demand conditions remain fertile for a continuous passthrough of prices to consumers, which will make the second leg of the inflation fight incredibly difficult. Inflation will ease in the coming months; however, getting it back to the 2.5% will be a challenge, which will require fiscal and monetary discipline in the next two years. Hiring appetite eased in December, but remains far from implying any meaningful rise in the unemployment rate. Strong inflows from FDI and EU funds should continue to provide an underpinning to the economy in the coming years.