Why I am skeptical about Romania(published on 22.02.2012)

Often enough people mistake my skepticism for pessimism. Especially those that are activating in the political arena and with whom I happen to disagree. Most of the time my reply is that I try to be as realistic as possible and assess the situation based on their policies. Last time I was called a pessimist last night on a TV show.

The dangerous side of the structural balance target

Last week I proposed a total change for the Romanian fiscal policy regime. I proposed to move from a discretionary fiscal policy to a rules based fiscal policy in Romania. There, I presented few targets for this new policy rule and one of them was a structural deficit of zero.

Easier to slip into recession today than in 2008

The crisis had a major negative effect on the Romanian economy: it had lowered the potential GDP. While mostly a theoretical concept it is not hard to feel that this is true. The potential GDP is that value around which an economy can grow employing all available resources and not create inflationary pressures.

Alternative view of falling inflation in Romania

Starting with August this year NBR is forecasting lower and lower inflation. The latest forecast puts inflation at 1.9% in 1Q2012, at 2.3% in 2Q2012 and at 2.8% in 2013. During this period inflation reaches 3.8% in 3Q2012 and then stabilizes around 3%. Everyone in Romania should celebrate these numbers. Before we bring out the champagne I have two question.
What happened to the Ballasa-Samuelson effect?
Could the 50% cut in potential GDP explain these inflation numbers?