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Romania GDP Q2 2020

Romania: GDP drops at record pace in Q2 amid Covid-19 fallout

A second release showed that the economy contracted 10.5% on an annual basis in Q2, contrasting Q1’s 2.4% growth, as Covid-19 containment measures took their toll. Q2’s reading matched the preliminary estimate and marked the worst contraction on record.

Private consumption plummeted 13.3% annually in Q2 due to lockdown measures enacted at the end of March, marking the worst result in the series’ history. Moreover, public spending growth accelerated to 4.7% (Q1: +3.5% yoy) as the government deployed various stimulus measures, including employment support schemes and tax relief, to mitigate the economic spillover from the lockdown. Fixed investment growth lost steam in Q2, slowing to 1.8% from 13.1% in Q1.

On the external front, exports of goods and services nosedived 28.5% year-on-year in Q2, considerably steeper than Q1’s 1.6% drop. Similarly, imports of goods and services plunged 21.6%, contrasting Q1’s 2.2% increase. Thus, taken together, net trade contributed positively to growth in Q2.

In seasonally-adjusted quarter-on-quarter terms, GDP plunged 12.3% in Q2, swinging from Q1’s 0.3% expansion and also marking the worst reading on record.

Looking ahead, GDP is seen contracting this year as the coronavirus pandemic deals a heavy blow to the economy. Prolonged Covid-19 containment measures will continue to subdue private consumption, while disrupted value chains are set to hamper capital spending. Moreover, the country’s worsening budget deficit further clouds the outlook.

Commenting on what to expect next, Valentin Tataru, economist at ING, noted:

“There are signs however that this could just lead to a flatter “V” shaped growth, meaning that the subsequent recovery from the third and fourth quarter will be less pronounced. […] We, therefore, maintain this year’s growth forecast at -5.5% and downgrade next year’s growth numbers from an admittedly optimistic 7.1% to 5.2%, as the recovery looks to take place at a more gradual pace than initially expected.”

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