7% Growth in Romania

Romania recorded a 7% economic growth in 2017, the national statistics institute announced on Wednesday. The growth rate, which was higher even than China’s 6.9% economic growth in 2017, surpasses even the most optimistic scenarios. Romania’s Prognosis Commission has the highest growth estimation for 2017, namely 6.1%.

In the fourth quarter, the local economy grew by 7% (in seasonally adjusted terms) compared to the same quarter of 2016, according to INS. Compared to the previous quarter, the growth rate was 0.6%, Romania Insider reported.

The European Commission expects Romania’s economic growth to slow down to 4.5% this year and 4% in 2019, according to the winter forecast released on Wednesday. However, Romania’s estimated economic growth remains the highest in the EU this year.

“Economic growth in Romania accelerated in 2017, with real GDP estimated to have grown by 6.7%–a post-crisis high. The main driver of growth was private consumption, supported by indirect tax cuts and wage hikes both in the public and the private sectors,” reads the EC’s report on Romania.

“Looking ahead, GDP growth is forecast to decelerate to 4.5% in 2018 and 4.0% in 2019. The growth of private consumption is expected to be more tempered in 2018, as inflation weighs more heavily on real disposable incomes and wage growth slows down,” according to the same report.

However, private consumption is expected to continue acting as the main growth driver while investment is forecast to strengthen on the back of higher EU fund absorption.

The EC expects salary increases to continue due to higher minimum wage and higher salaries in the public sector. The inflation rate is also expected to increase to 4.1% this year.

Meanwhile, Fitch ratings agency sees Romania’s economic growth at 3.8% in 2018, well below the 5.5% the Romanian Finance Ministry has forecasted. 

Fitch cites fiscal changes and the recent change in the prime minister as reasons to increase the macroeconomic imbalances. The agency foresees a 3.3% economic increase for 2019 in Romania.

After consumption boosted Romania’s economy growth to 7% in 2017, the highest in the European Union, Fitch warns of the economy overheating in the country.

“With the economy operating above capacity, further fiscal easing risks increasing macroeconomic imbalances, potentially increasing inflationary pressures, weakening competitiveness and widening the current account deficit, which we project to average 3.4% of GDP in 2018-2019, from 2.3% in 2016,” writes Fitch in its recent release.

The agency also thinks the fiscal deficits for 2018 and 2019 will exceed the Maastricht limit, rising to 3.4% and then 3.6% of GDP, respectively.