Economic outlook

The Gross Domestic Product in the second quarter of 2016 will increase by 6% as compared to the second quarter of 2015, according to estimates. The Romanian finance minister, Anca Dragu, has provided further details, in an interview on Radio Romania.

Anca Dragu: “It is true that we register a 6% growth rate, the largest in Europe in the second quarter of 2016. Most likely than not, this will take the annual economic growth rate at a higher level than estimated at the start of the year, namely 4.2%. As regards the structure of this growth, the highest increase is registered by consumption, which is not at all surprising. It is part of our scenario, because a series of measures, which favour consumption, have been taken, such as lower taxes on consumption and pay rises. But, investments have been made, too, with the most significant impact being registered in the second quarter. The increase rate in the field of constructions stands at 9%, investments registered an increase of 15%, with large investments increasing by 20% as compared to the previous year. It is true that these investments in infrastructure made with public money were at a rather low level in the first half of the year. I would also like to underline that direct foreign investments have also registered an increase of some 20%. This is a very important element, which shows that confidence in the Romanian economy is still high. People continue to invest, Romanian and foreign firms further keep their investments in the Romanian economy.”

Romania registers a high economic growth rate, just like in the period preceding the crisis. Do we run the risk of experiencing again the situation before the crisis broke out?

Anca Dragu: ”There is no such a risk, as the situations are completely different. Before the crisis broke out, Romania had been faced with many imbalances, at domestic and foreign level, for instance a very difficult dynamics of exports. The current account deficit stood at 14% of the GDP, whereas this year, the current account deficit is estimated to stand at 2%. So it’s quite a big difference. And it shows external imbalance. Then at domestic level, we had all sorts of imbalances, the budget deficit had soared, but what we’ve got to do in fact is to carry on with our cautionary policies which in future should not equally fuel consumption and also we should maintain our budget deficit target, while in the following years we need to initiate the gradual decrease of the budget deficit.”

But what happens by the end of the year as regards economic growth? Romania’s Finance Minister.

Anca Dragu: ”6% may be viewed as a peak percentage. The third quarter is influenced by agriculture. It seemed a rather good year, but there is a significant difference between a good year and an exceptional one. If we speak about an exceptional year, again we shall see extremely big figures for the third quarter as well. However, by and large, I believe it has nothing to do with the pre-crisis situation. But what I can also say is that we need to have a cautious approach and maintain our position within the current parameters of the economic balance.”

Also, the National Statistics Institute informs that in August, the annual inflation rate stood at minus 0.2%. With details on that, here is economic analyst Aurelian Dochia.

Aurelian Dochia: ”The inflation rate had a negative sign attached to it for a rather long period of time. I think we’re about to overcome an inflation year with a negative sign. It is an unusual experience for us, yet the Central Bank did not intervene, just as other central banks did, lowering the monetary policy interest rate to a below-zero percentage. At present, around the world there are several central banks that lowered the interest rate below zero. That did not happen in Romania, it may not even happen as we speak, as for the second part of the year the inflation rate is expected to relapse on a growing trend and that growing trend is likely to continue next year as well. By all means, a lot of that depends on what happens on the external market. The oil price is still unusually low and it is not likely to grow, which means that in Romania as well, the influence that factor will have is rather related to containing the inflation rate. Crops for 2016 seem to be quite good. And that, despite the fact that farmers have recently said that because of the drought we can expect some cereals prices to grow, but inflation-wise, growth rates in such cases are not going to be significant. So it seems that all factors remain focused on a very low inflation rate, event a negative one by the end of the year, while in 2017 we may return to more normal conditions, with a positive inflation rate. However, a lot can happen in the meantime on the European financial markets as well. In Europe, there are enough signals for some sort of unrest on the financial markets which can trigger changes both at the level of central bank policies and at the evolutionary trend of other factors, with a possible impact on prices.”

In August this year, fresh fruits, potatoes and other vegetables saw the most significant price reductions, while the price of citrus fruits, eggs, tobacco beans, sugar and pork grew significantly.