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3.2.3 Romania – Economic Outlook and Forcasts


Update Note: The data on this page sums up the situation in early 2008 and is rather of historical interest. For a recent forecast visit the page on the economy of Romania in 2010

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During 2007 the Romanian GDP grew by some 6.1 % (cf. Business Standard 2008 a) and reached the level of 121.43 billion of Euros at market prices, the respective value for the approximately same sized Netherlands was 272.77 billion of Euros (cf. Eurostat 2008). The Romanian real GDP per capita corresponds to a level of some 40 % of the EU-27 GDP per capita at PPS (ibid.).

Romania’s Labor market witnessed a further reduction of unemployment (4.4 % as national average; Business Standard 2008 a) despite an accelerated growth of labor costs which reached about 23 % at the end of the year (cf. Crăciun 2007).[1]Many articles dealt even with severe shortages on the labor market in Romania (cf. chapter 3.4).

FDI-inflows in Romania (cf. chapter 3.5) amounted to some 6.5 billion of Euros (cf. Business Standard 2008 a). On the other hand, due to a widened trade deficit and an exploding (private) credit market in Romania, FDI and workers’ remittances of further 7 billion Euros[2] could not make up more than half of the growing current account deficit. The latter reached the level of –14 % at the end of 2007 (cf. Business Standard 2008 a).

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Romania’s Government spending, though rising in absolute terms, remained relatively modest in relative terms, leading to a budget deficit of –2.7 % (ibid.).  Eurostat calculated a general public debt of some 13 % of GDP, the Romanian Ministry of Economy and Finance instead announced a public debt of still low 20.5 % of GDP. The differences arose, as usually, since Eurostat does not consider credits which are guaranteed by the state. Most of the public debt in Romania was domestic, the external public debt accounted to some 8.8 % of GDP. The low value of 13 % was achieved despite an increase in public debt by 24.2 % compared to 2006 (cf. Wall Street 2008). Overall fiscal policy seemed to be expansionary in 2007.

Inflation in Romania was about 6.57 % (ibid.) what corresponded with the seventh highest value in the EU-27 (cf. Folcuț 2008) and was of course well above the benchmark of the Maastricht criterion. Main drivers were raising prices for energy and food. The exchange rate fluctuated around 3.33 RON/EUR (cf. Business Standard 2008 a).

Outlook 2008

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The high confidence in the EU and beneficial view on European institutions (69 % in 2007; cf. Eurobarometrul 2007: 6) was not reflected by a likewise extraordinary participation during the elections for the European Parliament. After the year 2006 was marked by the “Dosariada” (cf. Popa 2006) – the public investigation of the Securitate archives and the accompanied removal of badly implicated politicians – “laitmotivul anului”[3] (Deleanu 2008) 2007 in domestic politics were several tensions between President Traian Băsescu and Prime-Minister Călin Popescu-Tariceanu. In April the Romanian Parliament even opted for a suspension of President Băsescu, while the population voted contrary in May. Nonetheless, a kind of cohabitation persisted, much to the displeasure of the European Commission as the reformation of the judicial system was postponed for several months because Băsescu and Tariceanu did not manage to agree on the right candidate for the replacement of the former Minister of Justice.

Economic Outlook and Forecasts

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

For 2008 the analysts from Business Standard (2008) expect a further, but due to the worsened economic climate, decelerating growth between 5 % and 7 %. Mugur Isărescu, the Governeur of the BNR foresees even another seven years of growth (cf. Moise 2008). The inititally envisaged inflation target of 3.8 % (± 1 %) will hardly be met by Romania as even the well established economies face currently such levels of inflation. A value between 6 % and 8 % seems more conceivable. Exchange rates could fluctuate between 3.3 RON/EUR and 3.75 RON/EUR, while unemployment is expected to shrink slightly to 4.3 % (cf. Business Standard); in spite of further expected two-digit salaries increases in many branches.

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Anyhow, while the mood seems quite positive so far – at least in the business press, the economic forecast and outlook scene – not all regions in Romania profit to the same extent from the progresses made during the last years. Chapter 3.3 will shed some light on the regional patterns of the Romanian economy and thereby deepen the insight in future prospects, problematic issues and the business environment.

Footnotes

[1] Even other CEECs still register two-digit growth rates of labor-costs. Lithuania even excelled Romania in this regard during 2007 and registered a growth of 30 % (cf. Crăciun 2007).

[2] While Romania benefited from an inflow of about 7.16 billion of Euros from its workers abroad some 1.2 billion of Euros were sent from Romania into other countries, indicating a repatriation of profits. About 1.1 billion had to be paid for EU-Membership. Hence, the effective benefit of the received remittances amounts to some 4.86 billion of Euros (cf. Nicuț 2008).

[3] “Leitmotiv of the year”[SH].