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22
February

Though the future prospects for the economy of Romania looked quite fine during 2008 the question now is how will Romania proceed in 2009 and thereafter?

Update note: data for the Romanian economy 2010 is available now!



Though the economy did a good progress after 2000, best to be seen at the GDP of Romania the current question is if this growth is sustainable after 2009 or not – especially when facing a worldwide crisis. But the future prospects for the economy do not depend only on external factors. The internal political and economical frame counts as well.

So let’s have a look on the driving forces for the progresses in the last years. At first, an important part of growth in Romania was more a catch-up effect: if starting from a low level, even small achivements appear like big steps after they have been transformed into percentages.  In absolute terms the GDP of Romania keeps being on a very low level, though it is certainly not idle and reached even more than a good third of the  European average.

A main issue are extremely large regional disparities in Romania as they don’t improve at all.
Thus, a real development is limited to some few economic centers in Romania, but other regions are more or less idle. This issue is quite an important one, as it leaves a lot of resorces of the economy unused.

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An important driver for growth and development in Romania has been foreign direct investment. This is tipically limited to the few developed economic centers. That is to say that FDI in Romania keeps being crowded in some developed cities of Romania. As a result the economy has to face sharp shortages on local labor markets, which again set low upper boundaries to the progresses experienced after 2000.In addition much of the FDI in Romania is yet rather labor intensive – not technology based. Hence, using unqualified labor as main input. Of course, there are exceptions (maybe Samsung or Nokia), though the aggregate picture, like comparing the  export and import performance of Romania,  shows that imports of high end output has a much lesser weight than of such an export. As a result, the trade deficit keeps being huge and growing, so does the current account deficit of Romania. Thus, a great deal of foreign debt has to be paid back in the future – setting also the currency under pressure what can already be observed since early 2009.

Necessary large-scale investments in the infrastructure of Romania and education could push other regions and cities so that they could follow the progresses of other regions in Romania. But the political frame does not seem convincing right now, as the planned projects in this regard haven’t been carried out yet, nor does it seem that they will very soon. The Romanian population on the other hand, lacks making pressure on their government (some 45% took their chance to vote last year at the elections) and accept a strange coalition between a former communist party and a so sayed liberal party.

Putting all this together, Romania seems highly vulnerable to the current crisis 2009, though, some export advantages like for Dacia are also to be observed in early 2009. Growth will certainly continue, but on a much lower level. Estimations for 2009 – 2013 range from a little bit more than 0 – to some 4%. Negative growth is seldomly assumed.

Overall, Romania certainly did great progresses in the past years, and it will continue to do so. However, upper boundaries for the future are currently low as the business environment (such as infrastructure and human capital) need significant improvements. But the political frame and governance are waek, and resemble rather southern italian style. Hence, mezzogiorno is a much more likely scenario for the future, rather than the Hungarian or Czech model. Romania could easily remain an additional case like South Italy in united Europe.

Romania Central will keep writing on Romania during the crisis 2009 in the next weeks.

Category : 2009 / Crisis Romania / Economy of Romania / News / Politics of Romania

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