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2022/06/10 / Erste Group Research

Muddling through, inflation is bliss for fiscal consolidation

After large historical GDP data revisions, including for the fourth quarter of 2021, adding an important positive carry-over effect, and a big upside surprise from first quarter GDP growth, we expect the consensus and official forecasts to align somewhere around 5.0% for 2022, from the 2-3% range before the 1Q21 GDP data release. This is likely to prompt the NBR to change its output gap assessment and subsequently lead to a more persistent elevated core inflation outlook. Nevertheless, the NBR is likely to lag behind its peers in tightening, though it committed to keep the interest rate gap vs. peers (Poland) unchanged going forward, while the EUR/RON exchange rate is becoming more of a nominal anchor. Inflation should help reduce the ratio between rigid government spending and fiscal revenues via real public sector wage deflation.

Similar to past crisis episodes, there is little-to-none fiscal headroom to support the economy, with rigid spending vs. fiscal revenues exceeding regional norms by a wide margin. The government came up with a set of fiscal measures to support the economy in navigating through the current difficult geopolitical context. Once again, the bulk of the measures address the demand side, with little support to supply-side potential growth drivers. In a no-policy-change scenario, the budget deficit is likely to overshoot the target, although we expect the government to come up with additional measures to fill the gap, as there is a sense of strong commitment to the fiscal consolidation path agreed with the EC.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusRomania
Currency in focusRomanian Leu
Sector in focus-


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