Friday, July 31, 2009

Romania GDP may shrink 2 pct in 2010-finmin official

BUCHAREST, July 31 (Reuters) - The Romanian economy is expected continue to contract by as much as 2 percent next year, compared with the International Monetary Fund's forecast of a sliver of growth, a finance ministry official said.Like most of its neighbours, Romania plunged into recession at the start of the year, as the world crisis slashed demand and lending, forcing it to seek 20 billion euros in IMF-led aid.

A mission of the Washington-based lender is in Bucharest undertaking a first review of Romania's progress in meeting aid conditions, which include a fiscal deficit target of 4.6 percent of GDP in 2009.

Officials have said Bucharest will ask the Fund to allow a bigger deficit, as economic contraction is expected to nearly double this year from the current forecast of 4.1 percent, boosting chances for further shrinkage next year.'Economic contraction in 2010 is inevitable, we will see a plus only in 2011 due to external factors,' Dorin Mantescu, head of the ministry's macroeconomic unit told Business Standard.'The economy will probably contract next year by up to 2 percent.'

On Thursday, Finance Minister Gheorghe Pogea said GDP may shrink by as much as 8 percent this year, compared with the IMF's forecast of a 4.1 percent contraction.Mantescu also said Romania would likely have to raise some taxes to boost revenues, but only after the economy recovers, to prevent further shocks.'On the revenue side, Romania has the lowest collection level in the EU. Nominal taxation rates are among the lowest. Taxes must rise but not now, only when the economy enters an upward path.'

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