Slowdown in Romania's wage growth heralds end of three-year surge

Slowdown in Romania's wage growth heralds end of three-year surge
By bne IntelliNews February 12, 2018

Average net wages in Romania increased by a real 9.5% y/y in Q4 2017, according to bne IntelliNews calculations based on statistics office data.

Much slower rates are expected starting January 2018, after the government made broad income taxation and social security contribution reforms — although major (and unrealistic) wage hikes are still being promised by the ruling coalition as of March.

The 9.5% y/y rise in Q4 is a very robust rate in absolute terms, but still the weakest performance in two and a half years.

After the net wage increased at an average rate of 12% p.a. in the last three years (2015-2017), the advance is likely to ease in 2018 as inflation rises and wages in the public sector (and partly in the private sector) are set to decelerate.

But the pace of deceleration remains largely unclear given the complex set of circumstances, some of which balance out others. The impact of the broad reform (unification) of income policies in the public sector combines with the fiscal reforms resulting in a nearly unpredictable outcome in terms of net wages. Negotiations are still being held in the public sector, and the ruling coalition is promising sharp wage hikes as of March under the unified wage system.

At the same time, workforce scarcity is putting pressure on wages in the private sector, while investors have the option of closing down their production facilities should labour costs push their operations below the break even point.

Romania Wages 2009 2010 2011 2012 2013 2014 2015 2016 2017
A. Net Wages (RON) 1,381 1,407 1,475 1,547 1,622 1,706 1,848 2,088 2,384
y/y % 7.7% 1.8% 4.9% 4.9% 4.8% 5.2% 8.3% 13.0% 14.2%
CPI deflated, y/y 2.1% -3.9% -1.0% 1.5% 0.8% 4.0% 9.0% 14.7% 12.6%
B. Net Wages (EUR) 326 334 348 347 367 384 416 465 522
    y/y % -6.3% 2.6% 4.1% -0.3% 5.7% 4.6% 8.3% 11.8% 12.2%
Source: INS, bne Intellinews