Worrying signs: Romania’s GDP growth rate in Q2 boosted by construction and IT&C, but 3 sectors turned negative

Sorin Melenciuc 06/09/2019 | 11:27

Romania’s Gross Domestic Product (GDP), the index widely used to measure the size of national economies, rose by 4.4 percent year-on-year in the second quarter of this year, to RON 240.6 billion (EUR 50.7 billion), mainly due to good performance in construction and IT&C, but three major sectors turned negative, suggesting that the local economy is slowing down.

A fresh report of the National Institute of Statistics (INS) confirms previously released flash estimate showing Romania’s GDP grew by 4.4 percent year-on-year and by 1 percent quarter-to-quarter in Q2 2019.

This compares to a much higher growth rate registered in Q1 2019, of 5 percent y-o-y and 1.2 percent q-o-q.

In the first half of the year, Romania’s GDP rose by 4.7 percent.

The GDP growth rate recorded in Q2 2019 was mainly due to the increase in construction, by 21.1 percent compared to Q2 2018, in shows, culture and recreation activities; repair of households goods and other (+9.9 percent), in information and communications sector (9 percent), and in real estate activities (+5.9 percent).

But industry, a sector that accounts for almost a quarter of the country’s GDP, declined by 0.7 percent year-on-year in Q2 2019, agriculture dropped by 1.7 percent, while activity in banking and insurance decreased by 0.9 percent.

Last year, Romania posted a GDP growth rate of 4.1 percent, up to RON 944.2 billion (EUR 202.9 billion).

The value is the largest ever recorded in the country and exceeds for the first time in decades the GDP of Portugal (EUR 201.6 billion), according to Eurostat data.

However, Romania’s economy remains smaller than the economy of the Czech Republic (EUR 206.8 billion in 2018).

Romania is now the 7th largest EU nation in terms of population but ranks 15th in terms of GDP – and 27th if we look at the more relevant GDP/capita index.

 Strong consumer spending

The growth rate of the Romanian economy in Q2 2019 was boosted mainly by strong consumer spending.

INS data show that household final consumption expenditure, the index measuring what people – acting either individually or collectively – spend on goods and services to satisfy their needs and wants, rose by 5.3 percent in Q2 year-on-year.

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.

Many economists insist Romania should change the economic model in order to obtain real long-term economic and social development.

Romania is still the second-poorest EU country if we look at the more relevant GDP/capita index, with EUR 10,400 per inhabitant in 2018.

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