Romania’s exports up, yet far from narrowing the trade gap

Romania’s exports up, yet far from narrowing the trade gap
By bne IntelliNews June 10, 2021

Romania’s exports rose by 113% y/y to €6.25bn in April, a robust growth even after the necessary correction for low base effects.

Over the past two years, the country’s exports rose by 6.3% per annum, speaking of April alone, which indicates a full recovery after last year’s crisis.

Furthermore, the outlook for the country’s exports remains positive as the global supply chains are rebuilding after the crisis.

However, the figures need another adjustment to reflect the rising prices underpinned by the rising energy bills.

Separately, the significant rise in exports is far from addressing Romania’s structural trade deficit.

Imports increased by only 77.3% y/y in April (to €7.98bn), which might be misleading. Not only was this enough to result in a 5% y/y advance of the trade gap to €1.73bn, but the two-year annualised growth rate of imports — a metric used to filter out the base effects — was 7.3%, 1pp steeper than the exports’ rate of increase.

Thus, Romania’s trade gap widened by one quarter in April 2021 compared to April 2019.

Q1 GDP data reveal the same structural trade deficit issue: net imports accounted for 6.4% of domestic demand (for consumption and investments), the biggest share in the past decade.

This is only half the 13% share seen in 2007-2008 before the recession, though. At that time the currency, strengthened by Romania’s 2007 EU accession and prior capital account liberalisation, as well as the buoyant bank lending were supporting such unsustainable levels.

By 2014, the trade gap was closed and Romania posted its first trade surpluses. However, the demand-driven growth particularly encouraged by the Social Democrats since 2017 resulted in a wider trade gap. The steady deterioration in Romania's trade balance halted in 2020 — when domestic demand halted as well — but is set to continue in 2021 and the years to come, fuelled by the transfers from the European Union's budget under the Resilience Plan. 

On the upside, this can be seen as an opportunity for investments in productive capacities — in addition to the massive investments in infrastructure — which is likely to support growth over the medium and long term.