To back its pessimistic forecast, the European Commission pointed the finger at the problems on the credit markets, the weakening confidence indicators and the worsening conditions on the labour market.
"The domestic demand boom, which has been the main engine of growth over the past five years, is expected to ease significantly on the back of a sharp reduction of credit growth, weakening confidence indicators and worsening labour market conditions," the European Commission's economic forecast published on Monday reveals.
The sharpest decline is expected in investment (both construction and equipment), which is projected to drop from 18% in 2008 to roughly 1.5% in 2009, the EU institution says.
At the same time, private consumption is set to slow down from 8% in 2008 to just below 2% this year.
The Commission announced, however, that it did not take into account the revised budget draft for 2009 devised by the new PDL-PSD (Democrat Liberal Party - Social Democrat Party) government.
Local analysts are not very optimistic about the performance of the economy, either, with most of them having revised their gross domestic product forecasts downwards. The gloomiest outlook on the economy is that of Nicolae Chidesciuc, senior economist of ING Bank, who sees the GDP going down by 3.5% in 2009.
"As a result of the latest trends globally, and especially locally, we decided to revise the economic growth forecasts for 2009 from 1.7% in November to minus 3.5%. As a result, we now believe that recession in Romania will most likely be impossible to avoid," Chidesciuc says.
Lucian Anghel, BCR's chief economist is revising its forecast, too.
"We are in the process of revising the economic growth forecast. Two months ago we saw a 4% growth, but the estimate will be revised downwards. Consumption may help us maintain a positive economic growth forecast," Anghel says.
Radu Craciun, head of Interamerican Fond de Pensii, is leaning towards a lower economic growth, of 1.5% to 3%, rather than a negative one.
"Even though the adjustment will be harsher in the first half of the year, I think we will see economy rebound in the second half, if the NBR relaxes the monetary policy. If it is not done, then we can expect the worst," Craciun said.
The authorities had a change of perception, as well, with the Finance Ministry and the Government adjusting their economic growth projection for 2009 downwards, from the optimistic 3.5% to 2.5%. Over the last few years, Romania has posted steady economic growth, reaching 7.9% in 2008.
With the budget deficit out of control, which exceeded 5% of GDP in 2008, and the shrinking financial resources, an anchor needs to be found now, that is an agreement with the international financial institutions.
The biggest problem of this year will be securing funding for the budgetary deficit and the foreign deficit, considering the sharp decline in the revenues collected by the state and the reduction of foreign investments.
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