Romania's GDP remains flat in Q1 2018 on weaker consumer spending and investment

Romania’s gross domestic product (GDP), the index widely used to measure the size of national economies, remained flat in the first quarter of this year compared with the fourth quarter of 2017, the weakest pace in one and a half years, due mainly to weaker consumer spending and investment, according to National Institute of Statistics (INS) preliminary data released on Thursday, which confirms the flash estimate.

The Romanian economy grew by 4 percent in the first quarter of 2018 compared with the first quarter of 2017, the slowest pace since Q3 2015.

Preliminary data disclose the reasons for this economic slowdown: compared with the last quarter of 2017, several major sectors declined.

INS data show that the industry, which accounts for almost a quarter (23 percent) of Romania’s GDP, declined by 1.4 percent in Q1 2018 compared with Q4 2017, constructions decreased by 0.6 percent, IT & telecom – by 1 percent, real estate activities – by 1.1 percent, banks & insurance – by 0.1 percent.

Net taxes on products also declined by 8.4 percent, according to INS data.

Only five major sectors of Romania’s economy grew from the last quarter of 2017: agriculture by 23.1 percent, wholesale and retail by 0.7 percent, professional, scientific and technical activities by 1.1 percent, “public administration and defense; social insurance of public sector; education; health and social assistance” by 8.9 percent and “shows, culture and recreation activities; repair of households goods and other services” by 4.7 percent.

Weaker consumer spending and investment

“Final consumption expenditure of households”, a key index of consumer spending, declined by 1 percent quarter-on-quarter, while investments decreased by 1.8 percent.

The GDP was RON 176.7 billion (EUR 38 billion) in the first quarter of this year.

In 2017, Romania’s GDP recorded a growth of 6.9 percent in real terms, up to RON 858.3 billion (EUR 187.9 billion), according to INS revised data.

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

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 10.2 in 2017 compared to the previous 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.

The impressive GDP growth rate recorded in 2017 was mainly due to the increase in agricultural production, with 18.3 percent compared to 2016, in information and communications sector (+10.9 percent), in professional, scientific and technical activities (+9.9 percent) and in wholesale and retail, repair of vehicles, transport, storage hotels and restaurants (+8.2 percent).

Construction was the only sector in Romania which declined in 2017, with 0.6 percent compared to the previous year.

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