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Romania’s Unexpectedly Weak Growth Signals Room for More Easing

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(Bloomberg)

(Bloomberg) -- Romania’s economy grew less than expected in the second quarter, boosting the case for the central bank to cut interest rates further despite a temporary spike in inflation.  

The Black Sea nation’s gross domestic product rose an annual 0.8% in the April-June period, trailing the 2.3% median estimate in a Bloomberg survey. The central bank had also anticipated “more solid growth than previously envisaged,” according to comments following the second consecutive reduction in borrowing costs last week.

“The negative GDP surprise clearly supports a dovish stance by the central bank,” said Ciprian Dascalu, a Bucharest-based economist at Erste Group Bank AG. Erste has put its 2.6% GDP growth forecast for this year under review for a likely downward revision to around 2%, pending further details from the breakdown release on Sept. 6, he said. 

Governor Mugur Isarescu said after the central bank lowered its inflation forecast for this year to 4% that future rate cuts will depend on data as policymakers also seek to avoid pushing Romania into a recession. 

ING Bank NV said it also lowered its full-year GDP forecast to a “still optimistic” 2%, from the previously expected 2.8% expansion.

“We are waiting for the breakdown to see the exact causes of this persistent weakness before making any other adjustments,” ING economist Stefan Posea said. “The risks of another cut from the National Bank of Romania this autumn have increased and so have the downside risks for the higher-for-longer rates scenario.”

--With assistance from Irina Vilcu and Barbara Sladkowska.

©2024 Bloomberg L.P.