BCR: Additional Tax Hikes May Prolong Romanian Recession

„Additional tax hikes would very much increase the possibility that the Romanian economy remains in negative territory for the third year in a row,” said Lucian Anghel, chief economist at BCR.

Romania’s government has enforced a five-percentage-point increase of the value added tax level as of July 1, in a move to boost revenue and cut the budget deficit. The measure contributed to a spike in the annual inflation to 7.1% in July, from 4.3% a month earlier.

According to BCR analysts, switching to measures aimed at fiscal relaxation would not be a good solution either, at least not until budget revenues increase to minimum 33% of the gross domestic product.

BCR estimates Romanian economy will decline by 3% in 2010, a gloomier forecast compared with the authorities’ projection of a 1.9% contraction.

For 2011 and 2012, the bank expects the economy to grow by 1.2% and 2.3% respectively.

Romanian budget deficit is estimated at 7% of GDP in 2010 and at 5.3% in the year to come.

BCR also expects jobless rate to peak at 9.4% this year, followed by a gradual decrease to 9.1% in 2011 and 8.8% in 2012.