BR Analysis. Romania to move closer to the EU average in terms of GDP per capita after Brexit

Sorin Melenciuc 18/09/2018 | 14:15

Brexit will have unexpected effects in terms of wealth comparison between the 27 remaining nations of the European union, as Britain account for a large part of total gross domestic product (GDP) of the bloc and is more developed than the EU average.

According to first Eurostat statistics regarding the effects of the Brexit, the differences between the EU member states will be smaller after the departure of the UF from the European bloc.

In 2017, Romania with a GDP per capita of EUR 9,600 in current prices, was at 31.9 percent of EU average, the second-lowest level after Bulgaria (23.7 percent).

But compared with the EU 27 (EU without the UK), Romania is at 32.8 percent of EU average, as Britain was 21 percent above the EU average in terms of GDP/inhabitant last year.

The United Kingdom had a total GDP of EUR 2,328 billion in 2017, accounting for 15.2 percent of total EU’s GDP of EUR 15,351 billion, according to Eurostat.

In terms of GDP at purchasing parity standard (PPS), Britain is still 5 percent above the EU average, as it is considered much more expensive than the EU average.

Last year, Romania has exceeded Croatia to leave the second-lowest GDP per capita at PPS position in the EU, reaching 63 percent of EU average – with the UK inside.

But without the UK, the EU average will be slightly lower than the current average, and Romania could be considered closer in relative terms to the rest of the bloc.

Middle-income trap risk

But beyond these sophisticated calculations, Romania remains an upper-middle income-economy, with low productivity compared with more advanced economies in the western wing of the EU.

And this middle-income region in the world’s wealth map is full of threats, many economists warn.

On Monday, European Bank for Reconstruction and Development (EBRD) president Suma Chakrabarti said that Romania risks falling into the middle-income trap as it has not been able to record the same pre-crisis growth rates without aggravating macroeconomic imbalances.

The phenomenon of the middle-income trap has preoccupied policymakers since Asia’s financial crisis at the end of the ‘90s, when economies in that continent suffered a marked slowdown.

A recent BR Analysis showed that Romania is one of the best candidates for the “middle-income trap” category, according to many economists, who suggest middle-income countries need to invest in infrastructure and to remove barriers to entrepreneurship in order to become part of the high-income world.

According to EBRD head, the trap doesn’t exist at any particular level of income.

“Middle-income economies do tend, on average, to experience a slowdown in productivity growth at income levels between one and two thirds that of the United States. This has been the case for Romania since 2008, as we have just seen in our look at your recent history,” Chakrabarti said.

According to the economists, as economies’ incomes rise, productivity growth fails to keep up, with countries finding it difficult to shift from a growth model based on investment and the adoption of existing technology to one driven by innovation and the development of new technology.

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