Romania’s unexpected GDP growth rate in Q3 boosted by good crops

Romania’s Gross Domestic Product (GDP), the index widely used to measure the size of national economies, rose by 4.3 percent in the third quarter of this year compared with the same period of 2017, to RON 263.7 billion (EUR 56.7 billion), mainly due to good crops, according to National Institute of Statistics (INS) data released on Friday.

The report confirms previously released flash estimate showing Romania’s GDP grew by 4.3 percent year-on-year and by 1.9 percent quarter-to-quarter in Q3 2018.

Romania’s economy rose by 4.2 percent year-on-year in the first nine months of this year, up to RON 663.2 billion (EUR 142.6 billion), according to INS.

The GDP growth rate recorded in Q3 2018 was mainly due to the increase in agricultural production, by 11.9 percent compared to July-September 2017, in information and communications sector (+7.9 percent), in in professional, scientific and technical activities (+5 percent) and industry (+4.4 percent).

Construction was the only sector in Romania which declined in Q3 2018, by 8.5 percent year-on-year.

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Last year, Romania posted a GDP growth rate of 6.9 percent, the highest in Europe.

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

Economic slow down

But Romania’s economy showed the first signs of slowdown this year, as consumer spending loses steam and the government has lower fiscal space to nourish its wage-led growth model.

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 percent in January-September 2018 year-on-year, easing from 10.2 percent in 2017.

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 9,600 per inhabitant in 2017.