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Romania: Economy decelerates in Q4, but remains buoyant

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Staff Writer | March 8, 2018
A second estimate by the Statistical Institute (INSSE) confirmed the economy expanded 6.9% over the same period in the previous year in the fourth quarter, moderating from the third quarter’s multi-year high of 8.8%.
Romania
Romania   FocusEconomics
The economy was again supported by buoyant domestic demand, while the external sector continued to drag on growth. Q4’s reading brought full-year growth for 2017 to 7.0%, the strongest pace of expansion in nine years.

The solid fourth-quarter result came on the back of surging household spending. Private consumption increased a significant 12.7% year-on-year (Q3: +12.4% year-on-year), benefitting from an expansionary fiscal stance, strongly rising wages and tightening labor market conditions.

Moreover, growth in fixed investment gained steam, increasing 12.6% from Q3’s already robust 6.2% growth, likely boosted by rising inflows of EU investment funds and the car assembly and machinery industries. Lastly, government consumption moderated to 2.1% growth in annual terms (Q3: +15.5% yoy).

Exports rose 7.7%, on the back of solid overseas demand for transport equipment, slightly down from Q3’s 8.6% expansion. Imports, driven by rising domestic demand, expanded 10.9% in Q4 (Q3: +11.1% yoy). Consequently, the external sector continued to drag on growth.

On a quarter-on-quarter basis, GDP growth adjusted for seasonal effects slowed to 0.6% in Q4, considerably down from Q3’s reading of 2.4%.

Romania’s economy grew at the fastest pace among EU countries in 2017, spurred by expansionary fiscal policies and soaring private consumption.

However, the pro-cyclical fiscal stance and sizeable budget deficit risk overheating the economy and pose stability risks in case of unexpected shocks.

That said, the economy should post another year of robust, albeit decelerating, growth in 2018, underpinned by favorable financing conditions, robust wage growth and rising EU funds inflows.

FocusEconomics Consensus Forecast panelists expect the economy to grow 4.0% in 2018, which is unchanged from last month’s projection. For 2019, the panel expects the economy to expand 3.4%.

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