Economic growth beyond potential is the most dangerous, says minister of Public Finances

Economic growth over the potential expected is “the most dangerous, because it means that we consume more than we produce,” said Anca Dragu, minister of Public Finances, during a Commission for European business in the Chamber of Deputies, as cited by Agerpres.

She further added that in practice an economy cannot combine the factors affecting economic growth optimally, thus leading to either growth under the potential or over it. “Right now, in Romania there is rather a supply deficit, and the reforms put on paper and being implemented by the authorities are of such a nature so as to reduce this supply deficit. These reforms lead to the potential growth of the country,” explained Dragu.

Moreover, she brought into focus that Romania faced similar problems before the economic crisis, and that it is now important that authorities focus on the structural reforms necessary to grow the potential of the Romanian economy, according to Agerpres. “We now have enviable growth, but we have to be careful with these challenges, to channel the economic growth into investment and exports growth and, somehow, consumption, which is already at a high level, should not grow too much anymore. This situation where consumption exceeds production can lead to disequilibrium,” pointed out Dragu.

According to her, if the opposite happens, Romania would be risking a cyclical growth that would, at one point, stop. She also stated that the authorities’ level of discipline acts as an example for the markets, because “undisciplined authorities do nothing but confuse the markets and create an unwanted reaction from them,” according to Agerpres.

The National Prognosis Commission (CNP) revised up to 4,2 percent its forecast regarding the advancement of the Gross Domestic Product (PIB) for this year and its estimate for 2015 to 3,7 percent, according to the winter 2016 prognosis published on Monday.

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Domestic demand will see a growth of 4.8 percent in 2016, compared to 4.6 percent last year, while for 2017 a growth of 4.8 percent is also expected and for 2018 of 4.9 percent. Gross fixed capital formation (investment) is expected to go up by 6.4 percent this year, 6.6 percent in 2017 and 7.1 percent in 2018, over the November 2015 forecast.

Andreea Tint