However, such turnaround may lead to new concerns and challenges going forward. Today’s event thus provides an opportune occasion for us to deliberate and exchange views on this topical issue. 3. Although latest economic data point to stronger growth momentum and smaller tail risks, uncertainty and short-term threats still remain. For example, the situation in Europe can easily come back to take centre stage thus providing a reality check and a pointed reminder that structural problems take time to resolve. Besides, anti-austerity pressure could delay ongoing reform efforts. This may, from time to time, raise uncertainty and spark volatility in the market. Meanwhile, improving economic outlook in the US needs to be tempered with reality of the fiscal drag and the near-term risk from spending cuts which can come back to hit market sentiment. Thus, we should proceed with care since the market has somewhat overly priced in the global recovery story. 4. The challenges from the great rotation can be viewed in two dimensions. First, risk preference has shifted from safety to riskier assets with the improved global sentiment. Particularly, global stock markets have rallied far beyond the modest global recovery. This can be seen in the MSCI World Index which surged by almost 25% during the last 9 months while global growth remains at low level. 5. Rallies in stock prices on the back of over optimistic sentiment may sow the seeds of potential bubble.
So, even though the EU membership has acted as a catalyst for country-level real convergence, the development gaps across the regions of Romania have actually increased. Shortly after the EU accession, there was a surge in economic optimism, translating into an acceleration in economic growth, along with a credit and real estate boom. Despite the efforts of National Bank of Romania, which maintained a prudent policy stance, macroeconomic imbalances widened: the current account peaked in 2007 and remained in the double-digit territory in the next year. Unfortunately, fiscal policy poured more gas on the fire by switching to a strongly expansionary stance after EU accession. Thus, when the global financial crisis hit Romania in the fall of 2008, the country had already expended all the bullets in its fiscal policy magazine and was in the unenviable position of having the second largest structural general government imbalance (around 9 percent of GDP) after Greece. There was no choice but to embark on a process of painful fiscal consolidation that was one of the largest and least gradual in the EU. Having prudently built policy buffers in the run-up to the financial crisis, monetary policy was able to maintain a countercyclical stance, yet it could not preclude a large contraction in aggregate demand in 2009 and 2010. Nevertheless, the ensuing correction in macroeconomic disequilibria created the conditions for resilient GDP growth and the loss in output was made up for by the end of 2014. Currently, we are in our ninth year of consecutive economic growth.