BR ANALYSIS. Romania set to hit two major thresholds this year: EUR 200 bn GDP and EUR 10,000 GDP per capita

Sorin Melenciuc 12/12/2018 | 07:00

Romania is close to hit two major thresholds this year in its development course, as the gross domestic product (GDP) growth rate acceleration in the third quarter has increase its chances to achieve two major targets: a GDP of EUR 200 billion GDP and a GDP per capita of EUR 10,000.

The other EU member states from the eastern wing, with the exception of Bulgaria and Romania, have already overtaken the EUR 10,000 GDP per capita-threshold for years but Romania remained under the barrier until now.

However, Romania’s GDP in Q3 2018, of EUR 56.8 billion, is the largest ever recorded in the country and exceeds the GDP values registered in the same quarter by the Czech Republic (EUR 52.5 billion) or Portugal (EUR 51.3 billion), according to fresh Eurostat data.

But Romania remains below the two countries if we compare the GDP values in the first nine months of this year (EUR 142.6 billion vs. EUR 152.7 billion and EUR 149.8 billion, respectively).

Given the GDP rates in the first three quarters of this year, Romania will most probably register for the entire year 2018 a GDP value of over EUR 200 billion, meaning that the GDP per capita value will exceed the EUR 10,000-threshold.

Romania is now the 7th largest EU nation in terms of population but ranks 16th in terms of GDP – and 27th if we look at the more relevant GDP/capita index, with around EUR 9,600 per inhabitant in 2017.

Overtaking Portugal

Last year, the eastern European country recorded a growth of 6.9 pct in 2017 in real terms, to RON 858.7 billion (EUR 187.9 billion), according to National Institute of Statistics (INS).

The growth rate recorded in 2017 is the highest since 2008 for Romania and is due mainly to government-led increase in households’ consumption.

During the last few years, the government adopted a strategy of wage-led growth, stimulating household consumption and GDP growth rates, but this model has generated larger fiscal and current account deficits.

Official data confirm Romania’s GDP was larger in 2017 than Greece’s GDP, estimated at EUR 180.2 billion, for the first time since the 1970s and ranked 16th among the 28 EU member states.

But Romania remained a smaller economy than the Czech Republic (EUR 191.6 billion in 2017) and Portugal (EUR 194.6 billion).

This year, Romania’s GDP is estimated to exceed EUR 200 billion (or even EUR 204 billion according to government’s forecast body, of little credibility) and the country has chances to overtake Portugal in terms of its economy size.

But the Czech Republic is growing faster and will remain a larger economy than Romania within the next years, according to independent estimates.

Fast catching up following the EU accession

In terms of GDP per capita in purchasing power standards (PPS), Romania posted the largest increase in 2017 among the 28 European Union member states and jumped one place in the bloc’s ranking, from the second-poorest nation to the third-poorest, with 63 percent of the EU average, according to Eurostat data.

In 2016, Romania was considered at 58 percent of the EU average in terms of GDP per capita in PPS, the second-lowest level in EU, after Bulgaria (49 percent), but below Croatia (60 percent), Latvia (65 percent), Hungary (67 percent), Greece and Poland (both 68 percent).

But after the impressive GDP growth rate recorded in 2017, Romania jumped one place in the EU nations’ ranking, overtaking Croatia.

According to Eurostat, Romania, with 63 percent of EU average, ranks above Bulgaria (49 percent) and Croatia (61 percent), and approaches Latvia and Greece (both 67 percent), Hungary (68 percent) and Poland (70 percent).

EU’s wealthiest nations are Luxembourg (253 percent of EU average in 2017), Ireland (184 percent), the Netherlands and Austria (both 128 percent).

Ireland’s GDP is artificially increased following the relocation from outside the EU to Ireland of balance sheets of large multi-national enterprises in 2015.

The purchasing power standard (PPS) is an artificial currency unit that eliminates price level differences between countries, according to Eurostat.

EU’s statistical branch explains that one PPS buys the same volume of goods and services in all countries, allowing meaningful volume comparisons of economic indicators across countries.

 

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