GDP growth eases to 4.4% y/y in Romania as consumption, investments gain momentum

GDP growth eases to 4.4% y/y in Romania as consumption, investments gain momentum
By Iulian Ernst in Bucharest December 6, 2016

Romania’s GDP growth decelerated from 6.0% y/y in Q2 to 4.4% y/y in Q3 as private consumption - the main driver in the past three years - lost momentum. The volatile gross fixed capital formation, expected to turn into a significant growth driver in the coming years, made no significant contribution.

The expansion was still the second highest growth in nearly three years, but there are still question marks over the goverment's projections for steady growth rates of 4%-5% in the coming years. For investments to become a significant growth driver, industry's contribution to GDP expansion, on the formation side, should strengthen significantly, which requires investments in the first place.

In seasonally adjusted terms, Q3 GDP increased by 0.6% q/q, losing momentum from 1.5% q/q growth in each of the past two quarters.

Net external trade remained in moderate deficit, with net imports amounting to 0.8% of the quarter’s GDP, marginally down from 0.9% in Q2. Net imports narrowed starting with 2013 and occasionally turned to a net surplus in H1 last year and Q1 this year.

GDP increased by 4.9% y/y in January-September, the statistics office announced on December 6. In the past four quarters ending September 2016, GDP increased by 4.5% y/y, according to bne IntelliNews calculations. For 5.1%-5.2% full-year growth as projected by the European Commission and World Bank, Romania needs 5.9% y/y growth in Q4.

The European Commission expects Romania’s GDP to increase by 5.2% y/y this year supported by fiscal easing and wage increases, to be followed by 3.9% in 2017, according to the Autumn Forecast issued on November 9. More recently, the World Bank projected 5.1% y/y growth for this year, followed by 3.8% in 2017.

On the formation side, services made the strongest contribution again (3.3pp of the 4.0% rise in Gross Value Added), and the annual growth rate remained robust at 6.5% y/y, albeit significantly below the 7.6% y/y expansion in Q2. Industry contributed 0.4pp to the overall growth. Construction and agriculture contributed nearly 0.2pp each after moderate expansions of 2.8% and 2% respectively.

On the utilisation side, the annual growth of private consumption eased to 6.1% y/y from 9.5% y/y in Q2. The growth rate was the weakest in the past four quarters in line with expectations of a more moderate rise in consumption. Gross fixed capital formation (GFCF), however, failed to meet expectations and increased by only 2.8% y/y in Q3, after the 10.7% y/y expansion in Q2 encouraged the government to claim that public investments had again become a main growth driver. After GFCF contributed 2.6pp to GDP growth in Q2, the contribution dropped to 0.8pp in Q3. Consumption’s contribution weakened as well by 3.5pp from 7.5pp in Q2, but it remained at a robust level of 4pp.