Investment in Romania

Romania - Investment

Second release confirms economic growth moderated in Q2

GDP grew 4.4% year-on-year in the second quarter (Q1: +5.0% year-on-year), according to a second release published by Romania’s Statistical Institute on 10 October. The deteriorating external backdrop and weaker private consumption led the deceleration.

Domestic demand lost stride compared to Q1. Household spending decelerated to a revised 5.1% year-on-year in Q2 (previously reported: +5.3% yoy) from Q1’s 7.0%, despite tighter labor market dynamics, as rising inflationary pressures in the quarter weighed on consumer demand. On the other hand, government spending was upwardly revised to 9.0% (previously reported: +1.6% yoy; Q1: +0.1% yoy). Fixed investment, meanwhile, grew a revised 18.9% in Q2 (previously reported: +18.0% yoy) on what appeared to be the improved absorption of EU-linked structural funds.

On the external front, export growth decelerated to a revised 3.3% year-on-year (previously reported: +0.5% yoy; Q1: +3.6% yoy) on shakier demand from the Eurozone. Import growth, on the other hand, came in at an upwardly revised 5.2% in Q2 (previously reported: +3.6%; Q1: +10.2% yoy), supported by strong domestic demand. Taken together, net exports continued to subtract from overall growth.

On a seasonally-adjusted basis, output grew 1.0% quarter-on-quarter (Q1: +1.2% quarter-on-quarter s.a.).

Growth is expected to remain healthy as a tight labor market fuels consumption, and thanks to improved private-sector and EU-led investment. That said, slowing exports against a backdrop of subdued external demand will restrain momentum. The precarious fiscal position is a key risk to prospects ahead.

FocusEconomics Consensus Forecast panelists see growth at 3.9% in 2019, which is up 0.2 percentage points from last month’s projection. For 2020, the panel sees growth at 3.0%, which is unchanged from last month’s projection, which is unchanged from last month’s projection.