Brussels downgraded Romania's budgetary deficit for the year, from 2.9% to 3.4% of GDP

UPDATE The European executive downgraded Romania’s budgetary deficit estimation for this year, from 2.9% to 3.4% of GDP after the European ESA95 standard, the EC fall prognosis report reads on Monday quoted by Romanian news agency NewsIn. For 2009, Brussels revised their budgetary deficit from 3.7% to 4.1% and for 2010, they estimate a 3.8% deficit.

The European Union itself will witness a period of stagnation in 2009, the fall EC economic prognosis report shows. European Commissioner Joaquin Almunia declared that the future is not that bright and recession is a real threat.

In 2007, Romania’s budgetary deficit was 2.6% of the GDP, after the same ESA95 standard. The Commission estimates that Romania will have an adjusted public deficit of 5% of GDP in 2008, 5.2% in 2009 and 4.7% of GDP in 2010.

However, Brussels estimates that there are important risks over the budget with the introduction of the second pension pillar, with a budgetary cost estimated at 0.2% of GDP. Thus, the Commission sees important risks as public salaries increase especially with the 50% teachers’ salary increase.

The report reads that similar demands might be made by other social categories. The second risk related to revenues, that could decrease considerably especially if there’s a slow economic growth. The draft budge approved last week by the government foresees a budgetary deficit of 2% of GDP but it is based on a completely non realistic estimation, experts argue.

Romania’s economy is over heated and its growth rhythm will slow down. Its current account deficit will remain worrisome while the financial perspective will get worse. Romania’s shock vulnerability is high especially in the current economic global environment.