Romania’s retail sales advanced by 10.1% y/y in July, accelerating from 8.5% y/y in Q2 and 6.9% y/y in Q1, the statistics office INS reported on September 4. Non-food sales drove the growth, although it was also robust across all  categories. In seasonally and workday adjusted terms, the retail sales index increased by 1.2% m/m in July.

While this is positive for GDP growth, the external balance is a risk since economic growth is already above potential levels. Retail sales euphoria is visibly fuelled by the income dynamics as well as by expectations of further enlargement in households’ disposable incomes, which on the downside generate overheating risks. 

Retail sales y/y	2013	2014	2015	2016	Q4 16	Q1 17	Q2 17	Jul-17
Total (excl. automoto)	0.5%	6.4%	8.9%	13.5%	8.5%	6.9%	8.5%	10.1%
food	-0.1%	5.3%	19.1%	13.7%	3.7%	1.7%	4.9%	6.1%
non-food	3.6%	10.8%	2.8%	15.2%	14.9%	9.0%	11.0%	13.8%
car fuel	-3.6%	0.3%	5.8%	10.2%	4.2%	12.6%	9.6%	9.7%
Source: INS

Romania’s GDP expressed in constant prices increased by 5.9% y/y, the statistics office reported in a flash estimate on August 16. The growth rate accelerated from 5.7% y/y in Q1. Separately, the external deficit keeps widening: fob/cif foreign trade gap widened by 39% y/y to €3.52bn in Q2, according to data released by the statistics office on August 9. The gap in the rolling 12 months, €11.3bn (18% up y/y), was the highest since the 2008-2009 global recession.

Wages were up by a real 13.5% y/y in June, according to the latest available data. Real average pay in Romania has been growing at double-digit rates since October 2015, supported by increases in public sector salaries and negative consumer price inflation. Separately, employment is rising by a couple of percentage points per year.

In the public sector alone, the payroll soared by a nominal 25% y/y after the 20% y/y increase in H1. Romania’s pro-cyclical fiscal policy and rapid wage growth this year have increased overheating risks, Fitch Ratings said on August 23.