The National Institute of Statistics confirms the upward trend seen by Romania’s economy.
The National Institute of Statistics has confirmed the upward trend registered by Romania's economy, with the reported growth rate exceeding analysts' estimates. The GDP has increased by 5.8% in the first 6 months of this year as against the same period of 2016. Also, according to the data published by Eurostat, in the second quarter of 2017, as compared to the first quarter, Romania reported the 3rd biggest economic growth rate in the EU, namely 1.6%, after the Czech Republic (2.3%) and Sweden (1.7%). Four sectors have had a significant contribution to economic growth. The IT and communications sector grew by 15.3% as compared to the first quarter of 2016, while professional, scientific and technical activities, administrative services and support services, a category that includes most services, grew by 9.4%. Also, the trade sector grew in the first quarter by 7.4% as compared to the same period of last year, while the industry, a sector whose contribution to the GDP stands at almost a quarter of the total amount, augmented by 6.8%.
Official statistics show that in the first quarter, only one sector did not report growth, namely financial brokerage (which includes banks, insurance and private pensions companies), which reported a 0.7% drop. At the same time, lower growth rates than in the 1st quarter of 2016 were reported in agriculture (+ 0.9%), constructions (+1.2%) and real estate transactions (+2.8%). As regards the use of the GDP, the economy was supported mainly by consumption in the first quarter. Thus, final consumption expenses of households rose by 7.4%, contributing 4.8% to the GDP growth, while the variation of stocks contributed +0.2%, show National Institute of Statistics data. Economic growth has started being felt by Romanians as well. The average gross salary rose by 15.5% while the average net salary increased by 14.9%. Here is the Prime Minister Mihai Tudose with details:
"This is the best indicator for the performance of the economy, the real economy, and for the feasibility of the economic policies pursued. It is obvious that the provisions of our governing programme are in agreement with the needs of the Romanian economy. The Romanian economy is becoming more efficient and more competitive, which makes its development and high economic growth sustainable. The economic growth level we have committed ourselves to and included in the budget projection for this year stood at 5.2%. However, we expect to exceed it. It will be even higher. In July alone, investments accounted for 2.4 billion lei, twice as much as the monthly average in the first semester and 33% higher than in July last year."
The Romanian economy received more stimuli from the government in the last two years, first of all through a significant rise in public sector salaries and the minimum wage. In the fiscal area, the government cut the VAT for food products from 24 to 19% on June 1 2015, a measure that strongly stimulated sales of food products, while the general VAT level dropped from 24 to 20% on January 1 2016 and to 19% on January 1 2017. The tax on dividends and several types of excise duties was also cut in 2016 and an additional excise duty on fuel and the so-called "pillar tax" were eliminated at the beginning of this year.
Pundits have cautioned against this type of economic growth. They say it's risky to raise salaries and then wait for production to grow. Cristian Parvan, secretary general with the Association of Businesspeople says that higher consumption levels have led to an increase in imports, tilting the trade balance, and that we are presently consuming what others produce. He believes that we must have policies that support innovative products, which would subsequently boost exports.
Economic analyst Aurelian Dochia is convinced that Romania's economy is heading towards a less stable situation with the public budget deficit facing a lot of pressure in 2017 and most likely in 2018 as well. Interests in local currency loans will gradually start to grow as early as this autumn, given that their level in Romania and abroad is an exceptional one, and central banks have for some time now been considering ways of normalising it. Experts have also warned that besides deficits, consumption-based economic growth may also lead to inflation and a rise in consumption prices, which will reduce people's purchasing power.
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