Garanti Bank, one of the most innovative and dynamic banks on the local market, estimates a robust growth of Gross Domestic Product (GDP) this year, of 3.7%, due to buoyant consumption, according to the latest Quarterly Macroeconomic Report, corresponding to the first quarter of 2016, said the bank in a statement.

The bank foresees that the main drivers of the economy in 2016 will continue to be trade and IT&C, while the real estate sector’s contribution in GDP could further intensify. The residential market is just facing the start of a new cycle, whereas the rapidly growing service sector will increase demand for office spaces, according to the forementioned report.

The state budget revealed in the first two months of the year a budget surplus of RON 0.8 billion. The VAT cut on food products from 24% to 9% implemented in 2015, the general VAT cut from 24% to 20% as of January 1st, as well as the 25% increase of wages in public healthcare, will continue to show their effects on the budget execution this year. The budget deficit nonetheless will remain under 3% of GDP, according to the bank’s Macroeconomic Report.

“2016 has started under good auspices. Trade is high, some service sectors, such as the IT and outsorcing, are boming and the real estate have started to show clear signs of rebound. As such, we can only expect this year to follow the positive outlook and see the local economy continues its progress”, stated Ufuk Tandoğan, CEO Garanti Bank Romania.

Garanti Bank expects prices to drop in the first half of the year, driven by the VATs cut and further estimates are that the annual inflation will enter positive territory in the second half of the year. The bank forsees that the easing monetary conditions will be kept during the year by allowing lower inter-bank rates compared to the monetary policy rate. Moreover, Garanti Bank estimates the first increase in the key interest rate in 2017.

Regarding the rate on the Minimum Reserve Requirements, the bank expects that they will be further cut this year, from the current 12% (for foreign currency liabilities) and 8% (for RON liabilities), to 9% and 6%, respectively.

In December 2015, Moody’s upgraded the outlook on Romania’s Baa3 government ratings to positive from stable. According to Garant Bank’s estimations, Romania’s macro parameters will continue to be in good shape. The average inflation and long-term interest rates are at a historical low, while the public debt and the budget deficit are below the thresholds (60% maximum and 3% of GDP, respectively).