Romania’s statistics office has revised downward the 2017 GDP growth by 0.1pp to 6.9% y/y, as the expansion rate in Q4 was 6.7% y/y under the revised data compared to 6.9% y/y initially estimated.

The revision brings no significant changes either on the formation or on the utilisation side. Consumption, gross fixed capital formation and exports increased slightly more slowly than initially estimated, but the big picture remains the same: household consumption contributed a massive 6.2pp to the overall 6.9% y/y GDP growth while gross fixed capital formation was responsible for only 1.1pp. Private consumption soared by 9.0% y/y, while gross fixed capital formation increased (on low base effects) by 4.7% y/y.

Although the recent growth has been mainly driven by consumption — prompting concern related to its sustainability — there are positive developments as well: the structure of the economy shifted toward tertiary industries and the growth rate is still slower than that seen before the 2008-2009 recession (thus generating smaller deficits).

The average GDP growth rate in recent years has been slower compared to the previous growth episode in 2003-2008 and the expansion generated smaller public and external deficits as well. Romania’s GDP has increased over the past five years by an average annual growth rate of 4.5%, compared to the 7.1% average growth in the five years before the 2008-2009 recession. 

The external indebtedness measured by the gross external debt to GDP remained roughly constant around 50%. However, the public debt to GDP ratio tripled since 2008 to nearly 40%. Currency depreciation will predictably keep the external deficit from widening at alarming rates, but there is hardly any automatic adjustment mechanism for the fiscal slippage. However, the very likely fiscal slippage this year and in 2019, generating hard landing risks, is likely to be cushioned by the public debt level that remains reasonable.