Investment in Romania

Romania - Investment

Economic growth picks up marginally in Q3

A second estimate released on 7 December by the Statistical Institute (INSSE) confirmed that the economy expanded 4.3% over the same period of 2017 in the third quarter, slightly above the second quarter’s 4.1% expansion. Despite the slight improvement in the headline figure, the breakdown of the print again points to prolonged weakness in the economy following economic overheating.

The broadly stable pace set in Q3 came on the back of solid growth in the domestic economy. Private consumption expanded 4.4% year-on-year in Q3, supported by tight labor market conditions and robust wage rises. However, the reading was down from Q2’s 5.1% increase and the lowest figure since Q3 2014, as sharp inflation and rising interest rates contained the increase. Fixed investment fell 1.6% in the quarter, owing to tighter financing conditions and the poor absorption of EU funds. However, the pace of decline was softer than the 4.8% year-on-year contraction recorded in Q2. Meanwhile, inventories continued to increase sharply, adding 3.3 percentage points to GDP growth. Lastly, government spending rose 1.5% (Q2: +3.1% year-on-year).

The external sector’s performance improved in Q3, due to slower import growth. Exports rose 2.5%, a notable slowdown from the 7.0% expansion registered in Q2 on weaker demand from the EU, especially from Germany. Imports also moderated considerably amid softer domestic demand, growing 6.6% (Q2: +9.2% yoy). All told, the external sector continued to drag on growth, although less than in Q2.

On a quarter-on-quarter basis, GDP growth adjusted for seasonal effects came in at 1.9% in Q3, accelerating from Q2’s 1.5% print.

Growth is expected to moderate in 2019, mainly due to slowing private consumption amid softening wage and employment growth. On the other hand, fixed investment should gain steam, although the scope of the acceleration could be limited by weakening business confidence and capital outflows due to the country’s sizeable twin deficits and frequent squabbles with European institutions over controversial judicial reforms.

FocusEconomics Consensus Forecast panelists expect the economy to grow 3.5% in 2019, which is unchanged from last month’s projection. For 2020, the panel sees the economy expanding 3.0%.