Current Economic Policies not Working in Romania

Florin Citu
May 2012 Bucharest, Romania

F L O R I N C I T U A D V I S O R Y

Economic Policies so far

Tight monetary policy until 2010 Short term liquidity hampers long term investment and growth Fiscal policy shocks: - doubled public debt as % of GDP - arrears increased and remained high - increased VAT from 19% to 24% -higher public expenditures relative to 08
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Output gap as of 2008

2.50 2.00

1.50

1.00 Summer 2008 Fall 2008

0.50

0.00 2008T1 -0.50 2008T2 2008T3 2008T4 2009T1 2009T2 2009T3 2009T4 2010T1 2010T2 2010T3 2010T4

-1.00
Source: NBR

-1.50

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Output gap as of 2009

4.00 2.00

0.00 2008T2 2008T3 2008T4 2009T1 2009T2 2009T3 2009T4 2010T1 2010T2 2010T3 2010T4 2011T1 2011T2 2011T3 -2.00 Winter 2009 Spring 2009 Summer 2009 -4.00 Fall 2009

-6.00

-8.00

Source: NBR

-10.00

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Output gap as of 2010

0.00 2009T2 2009T3 2009T4 2010T1 2010T2 2010T3 2010T4 2011T1 2011T2 2011T3 2011T4 2012T1 2012T2 2012T3 -1.00

-2.00

-3.00 Winter 2010 -4.00 Spring 2010 Summer 2010 Fall 2010 -5.00

-6.00

-7.00
Source: NBR

-8.00

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Output gap as of 2011

0.00 2010T2 2010T3 2010T4 2011T1 2011T2 2011T3 2011T4 2012T1 2012T2 2012T3 2012T4 2013T1 2013T2 2013T3 -1.00

-2.00

-3.00

Winter 2011 Spring2011 Summer 2011

-4.00

Fall 2011

-5.00

-6.00

Source: NBR

-7.00

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Output gap 2012

0.0 2011T2 2011T3 2011T4 2012T1 2012T2 2012T3 2012T4 2013T1 2013T2 2013T3 2013T4 2014T1 -1.0

-2.0

-3.0

Winter 2012 Spring 2012

-4.0

-5.0

Source: NBR

-6.0

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Output Gap estimates by the NBR

4.00 Summer 2008 Fall 2008 Winter 2009 0.00 Spring 2009 Summer 2009 -2.00 Fall 2009 Winter 2010 Spring 2010 -4.00 Summer 2010 Fall 2010 -6.00 Winter 2011 Spring2011 Summer 2011 -8.00 Fall 2011 Winter 2012 -10.00
Source: NBR

2.00

Spring 2012 2008T4 2009T1 2009T2 2009T3 2009T4 2010T1 2010T2 2010T3 2010T4 2011T1 2011T2 2011T3 2011T4 2012T1 2012T2 2012T3 2012T4 2013T1 2013T2 2013T3 2013T4 2014T1

2008T1

2008T2

2008T3

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Few Remarks
Almost every year the NBR has adjusted downwards the output gap (the economy was doing worse than expected) Almost every year the NBR has pushed the return of economic growth to potential further into the future In 2011 NBR had two positive adjustments to the output gap but have been canceled by estimates from2012.
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Implications for Economic Growth

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Implications for Inflation

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Implications for interest rates

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Implications for EURRON

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