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Romania GDP Q2 2018

Romania: Economic growth picks up marginally in Q2

A second estimate released on 7 September by the Statistical Institute (INSSE) confirmed that the economy expanded 4.1% over the same period last year in the second quarter, a notch above the first quarter’s 4.0% expansion. Despite the slight improvement in the headline figure, the breakdown of the print points to prolonged weakness in the economy following an economic overheating.

The broadly stable pace set in Q2 came on the back of resilience in the domestic economy. Private consumption expanded 5.1% year-on-year in Q2, despite sharp inflation and rising interest rates. Nevertheless, it was a deceleration from Q1’s 5.9% increase and represented the lowest figure since Q1 2015. Fixed investment fell 3.0% in the quarter, likely dragged down by the effects of the overheated economy and flat growth in the construction sector (Q1: +6.3 year-on-year). Meanwhile, government spending contracted 0.5% (Q1: +1.9% yoy).

The external sector performed poorly in Q2. Exports rose 5.0%, a notable slowdown from the 8.1% expansion registered in Q1 on falling demand from the EU. Imports also moderated considerably amid waning domestic demand, growing 7.9% (Q1: +11.4% yoy). All told, the external sector continued to drag on growth, albeit less than in Q1.

On a quarter-on-quarter basis, GDP growth adjusted for seasonal effects came in at 1.4% in Q2, accelerating from Q1’s subdued 0.1% print.

Growth in the Romanian economy is expected to remain solid in 2018, although slowing significantly from 2017’s robust expansion. Growth should be buttressed by strong consumer spending on the back of robust wage growth and still favorable financing conditions. Moreover, rising EU fund inflows should also support growth. That said, momentum is expected to lose steam in Q3, partly on a high base effect, but also given signs of a continued slowdown in domestic demand. Furthermore, economic imbalances like the growing fiscal deficit and widening current account deficit, continue to weigh on growth prospects.

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