Consumption pushes up Romania’s GDP growth to 8.8% y/y in Q3

Consumption pushes up Romania’s GDP growth to 8.8% y/y in Q3
By Iulian Ernst in Bucharest December 5, 2017

Romania’s GDP increased by 8.8% y/y in Q3, the statistics office said on December 5, confirming the figure that had prompted surprise when it was issued as a flash estimate on November 14. Seasonally adjusted, the GDP leapt by 2.6% q/q after a 2.0% advance in each of the previous two quarters.

The outstanding growth was pushed up by drivers that are likely to ease (or even reverse in the case of agriculture) next year, preparing the ground for slower growth rates in 2018 compared to the high base established this year. The government’s expectations of a 5.5% GDP advance in 2018 seem very optimistic at this time, even though this year’s performance might exceed the 6.1% estimate. 

In the nearer term, the impetus for growth is likely to continue in Q4, before losing steam during 2018.

Agriculture contributed 2.6pp to the annual growth rate in Q3, on the formation side. It was the second-largest contribution in the past decade and above-average harvests are unlikely in consecutive years (although this happened in 2013-2014). 

On the utilisation side, households’ final consumption contributed a massive 7.9pp — the most robust contribution made by private consumption since Q2 2008. However, after the sharp rise of households’ income in recent years, no significant wage hikes are in sight for 2018 and the higher interest rates (via households’ indebtedness) will probably push down private consumption.

On the utilisation side, the private consumption demand was so strong —  household consumption expanded by 12.3% in comparable prices — that it required supplementary net imports (2.3% of GDP in Q3, the highest share since 2012) and less inventory than last year was created in the quarter. Notably, the inventory kept rising, but as a result of the record crops that had not yet been exported or processed.

Gross fixed capital formation also (surprisingly) increased by 8.8% y/y — the second-largest increase in the past decade. The reasons for the capital accumulation is still unclear, but the profits capitalised by foreign investors (and recorded as FDI) might be one of the sources. The 6% higher price index for goods and services involved in capital formation (versus a 1.4% rise in the average prices paid by households and the 4.2% GDP deflator) contributed as well.

On the formation side, the contribution of industry and services to GDP growth remained not much changed from previous quarters at 1.8pp and 3.6pp respectively. Similar contributions were seen in the previous two quarters of the year. Agriculture stood out thanks to its 33.4% y/y increase in value added generated in the quarter. This dwarfed the still robust 7.8% y/y increase of industry and 9.7% y/y rise of services for households (both in GVA terms).