Unicredit has reviewed its forecast scenarios on the Romanian economy.

The latest scenario considers a negative impact of the VAT increase over consumption and indirectly on investments, with effects expected to be visible in the second half of 2010.

Low domestic demand will contribute to a GDP contraction by 2.5% this year as compared to the previous forecast of a 0.9% contraction, an Unicredit report reads.

According to the document, inflation is expected to grow due to a VAT increase of 5 percentage points and to peak at over 8% in August. For end of year, the forecast is of a 7.7% inflation, followed by a drop to 4% by end of 2011.

The report expects the Romanian National Bank would keep the monetary policy interest at 6.25% until end of year.