BR Analysis. Romania’s unemployment near trend change due to global factors, domestic political tension and lack of public investment

The unexpected rise of Romania’s unemployment rate in April could indicate a trend change in the near future, due mainly to the end of a global economic growth cycle, to domestic political tension and to the lack of public investment, economists say.

National Institute of Statistics (INS) data showed last week that Romania’s unemployment rate bounced back unexpectedly in April to 4.6 percent, the first increase in the last 11 months.

The seasonally adjusted unemployment rate rose 0.2 percentage point from March, but declined by 0.2 percentage point from April 2017.

Analysts point out that a series of indicators limit the downside potential for Romania’s unemployment rate.

“The slight uptick in the unemployment rate could have been due to an increased number of people joining the labor market (…) after sustained double-digit wage hikes that occurred in the last two years. With 1Q18 flash GDP coming out flat and fiscal troubles mounting, there is not much downside potential left for the unemployment rate, unless the government steps up investment,” ING analysts said in a research note.

Read more about

CMS advises OTP Group on the sale of OTP Bank Romania to Banca Transilvania

read more

Few available jobs

Experts warn that Romania still has few available jobs compared to its total active population, and this factor limits its growth potential.

“The Romanian labor market offers a pretty complex and slightly puzzling perspective. In the 15-64-year old category, there are roughly 4.9 million employees in an active population of around 8.8 million. By contrast, neighboring Hungary has roughly 4.4 million employees and an active population of 4.6 million,” ING analysts point out.

This approaching trend change comes in a moment when Romania still needs to maintain a high rate of jobs creation in order to keep structural unemployment under control.

“In the central scenario, we expect a change in the labor market trend, due to the maturity of the global post-crisis cycle and the internal challenges and tensions, with an impact on the investment climate,” Banca Transilvania economists said in a short note.

In this scenario, the structural component of the unemployment rate (as an annual average) could increase from 4.5 percent in 2018 to 4.8 percent in 2019 and 5.4 percent in 2020, Banca Transylvania analysts forecast.

Official data show that the number of unemployed aged 15-74 was 411,397 in April, compared with 403,607 in March and 445,261 in April 2017.

The unemployment rate among men exceeds the rate among women by 1.1 percentage point, with 5.1 percent for men and 4.0 percent for women.