Romania received some fantastic news from Eurostat: it registered the best economic growth in the European Union (1.4%) compared to the previous quarter. The data from the European Union’s Statistical Office is extremely clear and shows that, despite voices from the opposition demanding the change of government on a daily basis, Bucharest’s executive registered undeniable results.
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According to Eurostat, compared to the same quarter of last year, Romania’s economic growth during the second quarter of 2018 was 4.2%, according to Eurostat numbers.
After Romania, the countries with the best economic growth during the second quarter of 2018 compared to the previous quarter, were Slovakia and Sweden (both with 1%), Hungary and Poland (both with 0.9%), followed by Bulgaria, Cyprus, and Latvia.
Professor Adrian Mitroi: Inflationist fears weren’t justified
Adrian Mitroi, professor of Behavioral Finances at ASE (Academy of Economic Studies), declared for Q Magazine that “the economic growth indicator is important, particularly if we consider European economic and politic circumstances.”
“We can be relatively satisfied because the combination of monetary, fiscal, and salary-related policies seem to be well-balanced. The expected tempering down of expenditures works like an automated stabilizer for the economy.
But the state has little room for stimulating investments, and the private interest is in abeyance. A significant growth of public expenses with salaries and pensions depends essentially on the support provided by unabating and inclusive economic growth, in a competitive combination of expenditure, investments, and exports.
There’s a two-sided explanation for this kind of inflexion in the evolution of economic growth:
– expansive fiscal and salary-related policies – salaries that grow steadily, better pensions and income – they brought a sense of comfort and trust in macroeconomic circumstances, present and future
– a more neutral monetary policy, of supporting economic stability, without rushing the growth of interest which remained at a comfortable 2.5%, sign that we’re dealing with economic growth without an increase of inflation, like some economic reports indicated at the beginning of the year.
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Inflation has gone down from 5.4 to 4.5 during July, and it will most likely go as down as 3.5 by the end of year. So inflationist fears weren’t justified.
We have non-inflationist economic growth, with reasonable crediting, without increase in costs or prices, with a flattening deficit of current account.
Romania exports more and imports less and, as of recently, does so without being pressured by or into exchange rates.
The second half of the year will bring up new risks, geo-strategic ones, but more importantly macroeconomic ones that will pressure emerging markets and – through light contagion – the Romanian economy. The most likely outcome will be the slowing down of economic growth, which will still stay within expected parameters, most likely between 4 and 5%. Household expenditures are on the mend and will stay the main economic driving force for 2018. But 2019 will be a year of accelerated economic growth that will surpass that of 2018.
At this time, Romania’s economic dynamics are so favorable – and I’m not just being overly optimistic in saying so – that I think that during the next 10 years Romania will become an exceptionally attractive spot for the workforce. We still need some time, so competitive market pressure will teach us to move our attention toward the economic future of our kids, meaning toward investments,” Adrian Mitroi declared for Q Magazine.
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Those who claim that Romania is growing solely based on consumerism are disarmed by proof
Alexandru Petrescu, president of FNGCIMM, former Minister of Economy and of Business Environment, Commerce, and Entrepreneurship, analyzed for Q Magazine both the Eurostat numbers and the most recent ones from the National Bank (BNR) and the National Institute of Statistics (INS).
“Romania’s economy is taking steps toward tenable growth, independent of the optimistic or conservative filter of analysis. The accelerated growth of 2018 – registered during the first 2 quarters of the current year and backed up by confirmed statistical data both from the latest national reports offered by BNR and INS and European statistical sources, as well as the latest Eurostat report – places Romania’s economic growth on the second place, after Ireland (7.7%), also in terms of an ascending evolution of industrial production, which reflects a 7% growth. This is an indicator on which the ascension of Romania’s PIB is based upon and it reflects a potential for tenability for the medium and long run; it also disarms of proof those who claim that Romania is only growing based on consumerism.
The initial measures taken by Romania’s Government, as well as those of June 2018 – when the minimal limit for receiving public assistance was set to 3 million Euro (from 10 million Euro) – make me believe in attracting foreign investors in the future at least at the same pace. Today these investments represent an excess of 29.44% according to BNR, compared to 2017 (2.19 billiard Euro for the first 6 months of 2018, compared to 1.69 billiard Euro accumulated during the first 10 months of the previous year),” declared Alexandru Petrescu for Q Magazine.
But there is a risk of inflation
It’s true that Romania had the best economic growth in the European Union during the second quarter of this year compared to the previous quarter, a growth of 1.4% as shown by Eurostat data.
Next in that line come, at a considerable distance, Poland, Hungary, and Latvia, each with 0.9%.
But that growth also comes with a risk. The Brute Intern Produce (PIB) is calculated as a sum of investments, expenditures, and exports, from which imports are detracted. In Romania, consumerism has been the main factor of growth, and that happened while prices have risen significantly.
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During June, the last month of the second quarter, Romania had an annual inflation of 4.7% – also the biggest one in the European Union, according to the European Statistical Office. Next came Estonia with 3.9%, followed by Hungary with 3.2%.
“The economy progressed based on prices, when public investments didn’t evolve accordingly, and we’re not doing so well when it comes to European Funds either; we’ve only attracted 50% of the scheduled amount for the first half of the year,” declared economical analyst George Vulcănescu for Q Magazine.
“In order to have tenable economic growth, without public investments and without European Funds, you can’t lower inflation in a natural way. BNR can intervene for the short or medium term, say 3-6 months, but not for the long run. We might be able to keep up with this pace until end of year, but then we run into the risk of an increased public deficit. Once salaries and pensions grow, you need to adjust their value to the new level and you have nowhere else to bring in money from,” Vulcănescu added.
The Government agreed with the European Union on a 3% target for the public deficit during 2018. It’s a desired target that starts to seem hard to achieve. During the first 5 months of this year, the public deficit was 0.88% of the PIB, almost 3 times bigger than during the same time in 2017, when it was only 0.27% of the PIB.
Isărescu warned about the effect of increased salaries
Mugur Isărescu, Governor of the National Bank of Romania (BNR), launched a similar warning ever since July.
“Fiscal incentives and increased salaries can’t go on forever. These correlations between salaries, productivity, how much you make and how much you spend, will hit like a bullet sooner or later. You can’t neglect these aspects. If you don’t correlate them accordingly in due time, the market and economy will correct them one way or another,” said Isărescu, quoted by Agerpres.
“So the question is: when these incentives run out of power, what will we replace them with? Romania will have a growth potential by inertia, but it’s usually the wise thing to do to think about what driving power you’re substituting to stimulate economic growth,” mentioned the head of the central bank.
BNR has an inflation target of 2.5% for this year, give or take one percentage, although the most recent value (during July 2018, compared to July 2017) is much higher, at 4.56%.
The good news is that compared to previous months, when it was more than 5%, the inflation has gone down, just as Isărescu had anticipated. Also, the National Strategy and Prognosis Commission came up with a heartening estimate: an inflation of 3.5% at the end of year, and 4.7% inflation on average for 2018.
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