Romanian economy to sail through Brexit tremors; at least in 2016

In the Southeast Europe, Romania is one of the most dynamic markets, noted Commerzbank in a research report. The Romanian economy expanded 1.5 percent on a year-on-year basis in the first quarter of 2016 and 4.1 percent on quarter-on-quarter basis. In the fourth quarter of last year, the economy had grown 1.1 percent on year-on-year basis.

Since the Romanian economic activity is mainly driven by internal factors, such as consumption, Brexit’s impact is expected to be negligible on its growth in 2016, according to Commerzbank. The economy is expected to grow at least 4 percent this year.

The country is properly placed against any adverse short-term impact from Brexit as domestic demand mainly drives the economic growth, and as trade exposure to the UK is quite low. However, the longer-term, negative effect cannot be ignored.

Indeed the EU fund allocation of EUR 23 billion for the 2014-2020 period is all but certainly not to be changed; however, worries regarding this might result to front-loading actual fund usage in the coming  two to three years before the UK actually exits the EU.

The most vital channel would be the uncertainty around EU in the coming years. The risks are quite evident, said Commerzbank.

Meanwhile, the country’s inflation dropped to the negative territory in June 2015, mostly because of huge VAT reduction on food. Headline inflation averaged -0.6 percent last year. The nation’s central bank unexpectedly cut its inflation projections considerably in its latest inflation report. The central bank forecasts inflation to reach 0.6 percent this year and 2.7 percent next year.