The European Commission (EC) yesterday released the bleakest estimate of an international institution about the performance of Romania's economy this year, significantly reducing the economic growth forecast from 4.7% to 1.75%, Ziarul Financiar reported.

To back its pessimistic forecast, the European Commission pointed the finger at the problems on the credit markets, the weakening confidence indicators and the worsening conditions on the labour market.

"The domestic demand boom, which has been the main engine of growth over the past five years, is expected to ease significantly on the back of a sharp reduction of credit growth, weakening confidence indicators and worsening labor market conditions," the European Commission's economic forecast published on Monday reveals.

The sharpest decline is expected in investment (both construction and equipment), which is projected to drop from 18% in 2008 to roughly 1.5% in 2009, the EU institution says.

At the same time, private consumption is set to slow down from 8% in 2008 to just below 2% this year.

The Commission announced, however, that it did not take into account the revised budget draft for 2009 devised by the new PDL-PSD (Democrat Liberal Party - Social Democrat Party) government.

The authorities had a change of perception, as well, with the Finance Ministry and the Government adjusting their economic growth projection for 2009 downwards, from the optimistic 3.5% to 2.5%. Over the last few years, Romania has posted steady economic growth, reaching 7.9% in 2008.