Romanian GDP growth reaches post-crisis peak

Romanian GDP growth reaches post-crisis peak
By Carmen Simion in Bucharest August 12, 2016

Romania’s GDP increased by 6% y/y in the second quarter of the year, accelerating from the 4.3% growth in the previous quarter, according to a flash estimate from the statistics office on August 12. This is the best performance of the Romanian economy since the economic crisis in 2008-2009.

Compared to the previous quarter, Romania’s seasonally-adjusted GDP expanded by 1.5%,

For whole H1, the growth rate was 5.2% y/y.

The GDP in the past four quarters ending June 2016 increased by 4.3% y/y, accelerating from 3.7% y/y one quarter earlier and 3.8% at the end of last year. The government’s forecasting body projects this growth rate to remain roughly at the same level (4.2% y/y) at the end of the year and accelerate up to 4.7% y/y at the end of 2019.

The GDP growth in Q2 was most likely supported by consumption (on the utilisation side) and consumption-driven sectors (trade, other services and financial intermediation, on the formation side), as it was the case in the past two years and particularly in 2015. Although their growth slowed in the second quarter of the year, retail sales still went up 17.1% on the year. Industry accelerated to 2% y/y in Q2 from 0.5% y/y in Q1 and might have also contributed to the growth.

The fiscal stimulus, including VAT rate cuts and wage hikes – in the public sector as well as across whole economy by the minimum statutory wage, is likely to have remained strong in Q2 and will probably fade away in H2 and particularly next year. Real average pay has been growing at double-digit rates since October last year.

Romania’s economy is expected to expand by 4.2% this year and by an average of 4.5% for the following three years, Finance Minister Anca Dragu said on June 9. The ministry's outlook for this year is in line with those of the International Monetary Fund (IMF) and the European Commission (EC). However, it is more optimistic for the following years. The IMF expects growth to slow down to 3.6% next year, while the EC has projected 3.7% GDP expansion.