The question on everyone’s minds is what to expect from a financial standpoint in 2021. Without a doubt, the COVID-19 pandemic threw off all the economic forecasting announced at the beginning of 2020, as the impact of the measures taken to limit the spread of the virus has yet to be fully understood or evaluated.
Recession seems to be unavoidable; globally, the Word Bank forecasts an economic contraction of 7,7% in 2020 and a very modest recovery (1,6%) by the end of 2021, while also cautioning that the situation remains highly volatile. For Romania, Word Bank anticipates that the negative impact of the COVID-19 pandemic will be significant, announcing a -5,7% real GDP growth for the year 2020 (a 9,1 percentage point difference from the January 2020 projections).
According to the European Commission, Romania should expect an economic contraction of 6,0% in 2020 and an inflation of 2,5%. Weighing heavily on the economic prospective is the severity of a potential second wave of COVID-19 infections, and the authorities’ ability to manage investors’ concerns, given the pre-pandemic already fragile confidence due to a perceived fiscal indiscipline. The European Commission expects that the Romanian economy will make a 4% rebound in 2021.
The International Monetary Fund (IMF) projects a global economic decline of 4,9% in 2020, and expects that the recovery will be gradual. IMF experts weigh in that the sharp drop in consumption is due to the unique set of circumstances caused by the pandemic: volunteer social distancing, lockdowns imposed by authorities, drops in income and increased consumer anxiety. IMF also reports that even in countries where lockdown restrictions have been lifted, mobility data from cell phone tracking suggest that retail traffic and activity remain low. For Romania, the International Monetary Fund projects a 2020 GDP downturn of 5,0% and an inflation rate of 2,2%.
The business environment remains rather pessimistic; a survey conducted by PwC indicates that over half of interviewed entrepreneurs from Central and Eastern Europe expect revenue declines in the coming year, with liquidity being a main concern.
On top of the economic downturn caused by the pandemic, the National Bank of Romania also warns that the 40% increase of the pension point is not sustainable and could lead to a national budget deficit of 11%. According to Erste, the 2021 economic outlook will rest heavily on the fiscal policy stance after the December 2020 general elections and the measures taken to manage the budget deficit and avoid rating downgrades.
