--Economy still trailing below potential --Inflation rate hovering above CBs target in 2013 --Budget deficit in line with Maastricht criteria in 2013

We have lowered the 2013 economic outlook to 1.1% from an earlier 1.9%, while keeping growth prospects for 2014 flat at 2.3%. Romania still retains a positive growth differential of around 1% over the Eurozone, which is roundly seen as lingering on in recession this year. The country will continue to shy away from its already subdued potential now estimated at 1.3% while we expect foreign direct investments to see only marginal improvement (1.3% of GDP). The local economy will still, in 2013, be under the spell of the same contrasting influences of positive domestic demand and negative net exports (external demand).

We have cut the inflation forecast for this year to 4.1% from a previous 4.7%, as the persistence of a sizable negative output gap suggests downward pressures on inflation. But there is more to this than meets the eye, as we expect inflation this year to hover well above the upper edge of the CBs inflation target (3.5%) in the wake of several rounds of energyprice hikes according to the latest administered price liberalization agenda.

We have slashed the budget deficit forecast for this year to 2.8% of GDP (ESA), taking into account the positive performance reported in 2012, when the fiscal deficit fell to 3% for the first time in the last five years. Although further fiscal consolidation will be less of a burden this year, the socialist-liberal cabinet has yet to deliver on some overdue commitments related mainly to the restructuring and privatization of state loss-making companies with a view to further reducing the backlog of arrears.