Romania’s GDP expanded by 5.2% y/y in the fourth quarter of 2013, pushing the full-year growth rate to 3.5%, the statistics office reported. This is well above the projections of most independent analysts, which were ranging in the 2.5-3% band. The seasonally-adjusted GDP picked up 1.7% q/q.

The better than expected GDP will dilute the fiscal gap and the CA deficit when expressed as percentages of GDP. But it will also raise even more questions regarding the disappointing tax collections.

Until more detailed data is released, it is premature to estimate the contributions of independent growth drivers – but it is obvious that the bumper crops in the farming area and the industrial growth stimulated by external demand have contributed critically.

Besides the external demand, which has supported the industrial growth through the whole year, domestic demand might have slightly recovered in Q4. Private consumption picked up marginally driven by low deposit interest rates [hence fewer reasons to build up bank deposits] and aggressive sales campaigns of retailers.

RECORD Q4 GROWTH MIGHT BE CIRCUMSTANTIAL…

The reliance on external demand and agriculture suggests the growth might be unsustainable and to some extent reversed in 2014. Specifically, well above-average crops in agriculture in one year increases the likelihood of negative contribution of agriculture next year. Similarly, it is not sure to what extent the high two-digit growth rates of exports are sustainable on medium term.

… BUT IT IS NOT FULLY IRRELEVANT

Nonetheless, both exports and agriculture hold a significant long-term growth potential. Separately, the rise in farmers’ value added creation might partly reflect permanent developments reflecting the aggregation of small farms in larger, more efficient ones. Better irrigation and use of modern technologies could further push up their yields hence their contribution to GDP. As regards the exports, continuous investments in production capacities and infrastructure, supported by EU funds, should in principle support the country’s export potential.