Romania’s strong GDP growth rate in Q1 boosted by good performance in IT&C, construction and services

Romania’s Gross Domestic Product (GDP), the index widely used to measure the size of national economies, rose unexpectedly by 5 percent in the first quarter of this year compared with the same period of 2018, to RON 202.8 billion (EUR 42.7 billion), mainly due to good performance in IT&C, construction and services, according to National Institute of Statistics (INS) data released on Thursday.

The report confirms previously released flash estimate showing Romania’s GDP grew by 5 percent year-on-year and by 1.3 percent quarter-to-quarter in Q1 2019.

The GDP growth rate recorded in Q1 2019 was mainly due to the increase in information and communications sector, by 10.8 percent compared to Q1 2018, in professional, scientific and technical activities (+9.5 percent), in retail, wholesale, transport, logistics and HORECA (+6.7 percent), and construction (+6.5 percent).

But industry, a sector that accounts for almost a quarter of the country’s GDP, grew by only 0.8 percent year-on-year in Q1 2019, while activity in banking and insurance was almost flat (+0.1 percent).

Last year, Romania posted a GDP growth rate of 4.1 percent, up to RON 944.2 billion (EUR 202.9 billion).

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The value is the largest ever recorded in the country and exceeds for the first time in decades the GDP of Portugal (EUR 201.6 billion), according to Eurostat data.

However, Romania’s economy remains smaller than the economy of the Czech Republic (EUR 206.8 billion in 2018).

Romania is now the 7th largest EU nation in terms of population but ranks 15th in terms of GDP – and 27th if we look at the more relevant GDP/capita index.

Strong consumer spending

The unexpected performance of the Romanian economy in Q1 2019 was boosted mainly by strong consumer spending.

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 6.7 percent in Q1 year-on-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.

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 10,400 per inhabitant in 2018.