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3.2.2.1 Romania's Real Sector


Update Note: the information on this page is as recent as from 2008 and still useful For updates and more recent data visit: The GDP of Romania.

Romania’s economy started to exhibit first signs of recession already during the 1980s, when in the years 1986, 1987 and 1989 some negative growth in real GDP per capita had to be recorded. The recession accelerated after 1989 and was followed by a short period of artificial recovery after 1992 (cf. Figure 3.1 and Figure 3.2). In this first period of recession in Romania real GDP per capita fell from 4,702.69 International Dollars (I-$)[1] in 1989 (NL: 16,499.23 I-$, HU: 8,459 I-$) to a mere 3,862.47 I-$ in 1992 (NL: 19074.92 I-$, HU: 7,920.83 I-$). This means negative growth rates of up to –12.98 % (1991) in Romania, while Hungary’s highest negative growth rate was about –10.76 % (1991).

Recession in Romania and Recovery after 2000

Image 3.1: Romania’s Real GDP per Capita 1990 – 2004

Real GDP in Romania

Source: PWT 6.2; own graphic

Growth Rates in Romania

Image 3.2: Romania’s Growth Rate of Real GDP per Capita 1989 – 2004

Growth Rate of the Romanian GDP

Source: PWT 6.2; own graphic
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Whereas most Central and Eastern European Countries (CEECs) faced an U-shaped evolution of GDP (cf. Wyplosz 2000: 2) GDP evolution in Romania should be described better as W-shaped: the initial output decline was followed by some artificial, unsustainable growth, not even making up for the losses and was soon followed by another recession (cf. chapter 3.2.1) due to unfinished but necessary restructuring. Maybe by 2000 Romanian GDP recovered and exceeded the initial level from 1989. The subsequent years can be characterized by strong and stable growth, in spite of a less favorable European and even global economic environment.

Some comparative studies (e.g. Figuet & Nenonvsky 2006) claimed that significant convergence progress had not been achieved in Romania, when assessed against other CEECs. Such results are the consequence of average buildings which do not distinguish (as e.g. EC 2007 d: 13 does) between the period of (one or both) recessions in the nineties and the achievements after 2000. Since the recovery is mainly driven by a sustainable “explosion” in exports (cf. Kaminski & Ng 2004) and internal demand (cf. BA-CA 2004: 5; Zaman 2007 a: 2) the strong growth is widely expected to continue over the next years.

Romanian GDP Sectoral Composition

Image 3.3: Sectors Relative to GDP 1990 – 2005

The Composition of the Romanian GDP by sectors: Agriculture, Construction, Industries, and Services

Source: INS 2008; own graphic, own calculations

The transition and recovery period was accompanied by major changes in the sectoral composition of the Romanian GDP. The completely oversized industrial sector (about 40.52 % of GDP in 1990) was rapidly downsized, reached a share of some 24.80 % by 1999 and continued more or less stable afterwards. On the contrary, the contribution of agriculture remained stable in the first years of transition and even witnessed a slight growth in some years. This development does hardly reflect a productivity growth in the respective domain but is rather due to the massive decline in industrial output.

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The contribution of agriculture to GDP in the year when recovery was achieved (2000) is a better but still overestimating indicator for the performance of this sector (some 11 %), especially when the employment share of this sector (over 41 % in 2000) is taken into account (cf. chapter 3.2.2.2). Another indicator for the low performance of the agricultural sector is its negative contribution to net exports (cf. Scrieciu & Winker 2002: 14, 38). The underdeveloped services sector (32.3 % in 1990) grew moderately until the mid-nineties and accelerated its growth only beginning in 1997, reaching a share of over 61 % by 2005. Anyhow, this value is still below the EU-27 average of 71.4 % in 2006 (own calculations based on Eurostat 2007: 8).

Academic Research paper and Study of the Economy of Romania and Romanian Business

The construction sector was subject to several fluctuations following broadly the general pattern of the Romanian transition process. Starting with a share of 5.36 % in 1990 it was strongly affected by the first recession and recovered during the first period of fragile growth until 1997. It was hit again by the second recession but recovered fast after 2000 and enjoys currently a real boom. The evolution of GDP composition is only partly reflected by labor market structures.

Footnotes

[1] For the sake of greater comparability the data referring to real GDP is taken from Penn World Table 6.2 and expressed in the hypothetical currency of International Dollars (I-$). For orientation purposes some data for the Netherlands (NL) is given, as it resembles Romania nearer in population size as e.g. Germany (cf. Dulleck 2006). For further benchmarking purposes regarding the CEECs the respective data for Hungary (HU) is added as the Hungarians followed a somewhat more stable path of recovery.

[2] An indeed clearly W-shaped curve is to be found in Figure 3.7 or at Dulleck (2006: 643), who illustrates the evolution of standardized GDP per capita for several CEECs and Austria. Figure 3.1 rather prefers to illustrate the evolution of GDP and to compare its absolute dimension with these of other countries.