BR Analysis. Romania to overtake Portugal as EU’s 15th largest economy but remains far below its potential

Romania’s gross domestic product (GDP), the index widely used to measure the size of national economies, will probably exceed the EUR 200 billion threshold this year and pass Portugal’s GDP but remains far below its potential related to its population.

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

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.

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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.