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Wednesday, September 29, 2004

Romania's economy

Right now Romania's economy is doing OK. Yes, there are lots of problems, some of them very serious, but the macroeconomic fundamentals look pretty good.

In the first quarter of 2004, Romania's economy grew at an annualized rate of -- wait for it -- 6.1%, and according to the PM Adrian Nastase, Romania will achieve an economic growth of 7.5% this year – the highest in Europe and the country’s 15 year-high. The original target set for this year was 5.5%.

However, the majority of economic analysts believe this growth will not bear any significant effects on individuals and some even believe that for real effects, the growth must be more than 10%. One example backing their belief is that, despite an outstanding wheat crop this year, the price of bread has not decreased at all.

The economic growth was led by the industrial sector (which grew at 6.6%) and construction (7.2%). The service sector grew by 5.7% and agriculture by 5.4%... slow compared to the rest of the economy, but still not bad.

Also the foreign direct investment (FDI) -- both greenfields and equity purchases -- is up, with some 1.8 billion USD in FDI attracted last year; Romania ranks fourth among Central and Eastern European countries and first among South-Eastern European countries.

So, the foreign investment is growing quickly, although from a very small base, but it's expected to double in the next two to three years. In the same time lending is growing like mad, around 50% per year.

According to the National Bank of Romania in the first seven months of this year, the current account deficit reached 1.75 billion euros, 3.2% of the GDP expected for this year
The Government and the National Bank of Romania pledged in negotiations with the International Monetary Fund to contain the current account deficit at 5.5% of GDP for this year, 0.4% lower than in 2003.
From January to July 2003, the current account deficit reached 2.8% of GDP.

The biggest problem is the foreign trade deficit, which is just getting bigger and bigger. Romanian exports are up, but imports are up even more. Unemployment has been falling for the last couple of years. Today it is around 7.5%, which seems high to Americans but is pretty good for Europe.
Still, overall it's good news for Romania.
Which is also good news for the ruling Social Democratic Party, the PSD. PSD faces national elections in November. At this point they're expected to win...

So, good news, right? Well, maybe. Is this for real? And, if it is, how long can it go on? Am I missing something?

One oddity: after three, now going on four years of good economic news, Romanians seem as pessimistic as ever or even more.

Why?

Posted by Iulia Rasoiu : 9/29/2004 11:39:00 am