Consumption pushes Romania’s GDP growth to 5% y/y in Q1

Consumption pushes Romania’s GDP growth to 5% y/y in Q1
By Iulian Ernst in Bucharest June 7, 2019

Romania’s statistics office, INS, on June 6 confirmed the country’s GDP increased by 5% y/y in the first quarter of the year (Q1). 

Detailed data point at an excessive rise in private consumption pushing up net imports at an intensity not seen in the past decade since the 2007-2008 surge ended in recession. Net imports accounted for more than 4% of GDP for the second quarter in a row. 

There is not much good news: the gross fixed capital formation moved into positive growth, and, besides retail, more value added segments of the services sector are gaining ground. There is more bad new though: the accumulation of inventory continued, and the value added generated by industry decelerated.

On the GDP formation side, the broad sector of services made the main contribution to the GDP growth. Industry, construction and agriculture (the primary and secondary sectors), 29% of the gross value added (GVA) generated by the country’s economy, contributed only 0.4pp out of the 4% increase in the GVA. The services sector, 63% of GVA, contributed 3.5pp. Its share in total GVA has increased from 48% back in 2008-2009. 

Part of the growth in the services sector stands for the consumption-driven buoyant retail sector and it is debatable whether this is sustainable, particularly looking at the rise in imports. But B2B services and the information and communication sector have both increased as well, accounting for a 1.2pp rise, more than one third of the overall increase in the services sector. Both sectors together account for 14% of GVA compared to 6% ten years ago. The advance of these two sustainable, high value added sectors might be slow, while the traditional, potentially not sustainable sectors such as retail still dominate Romania’s tertiary industry — but a certain improvement is visible.

The detailed data confirmed that private consumption had a key role in the economic growth: households’ final consumption expenditure rose by 6.7% y/y, the highest annual growth rate in five quarters, and contributed 4.3pp to the GDP growth in Q1. On the upside, the gross fixed capital made a 5.4% annual advance and a 0.9pp contribution to the GDP growth.

Net imports accounted for more than 4% of GDP for the second month in a row, a high level not seen since 2012. Notably, Romania’s National Bank (BNR) named the widening external deficits as the main risk to financial stability earlier this month.

Also on the utilisation side, the accumulation of inventory continued: 3.9% of GDP was used for this end. The accumulation of inventory thus contributed 2.4pp to the GDP growth, more than twice the contribution of the gross fixed capital formation.

On the formation side, the value added generated by the sector services to households rose by 10.8% y/y, contributing 1.3pp to the GDP growth. The total GVA generated by the economy increased by 4.4%; therefore, the services to households contributed roughly one third.

The net taxes surprisingly contributed 1.1pp to the GDP growth, thanks to outstanding 10.4% advance in volume terms.

Elsewhere in the real sector, the value added generated by industry rose by 0.8% y/y and contributed only 0.2pp to the GDP growth. The construction sector, albeit not particularly important in Q1, contributed 0.2pp as well thanks to a robust 6.5% rise in the value added generated (activity gained momentum in the residential sector particularly).