Romania, the Turkey inside the EU? World Bank’s study suggests Bucharest is now more similar to Ankara than to the rest of the EU in terms of economic policies

Sorin Melenciuc 13/09/2018 | 07:00

Romania is considered more similar to Turkey in terms of fiscal policies and inflation than to the rest of the European Union, according to the “Global Economic Prospects. The Turning of the Tide?”, recently released by the World Bank.

Like Turkey, Georgia, Pakistan or the Philippines, Romania is considered a large commodity importer. But Romania is associated with Turkey mainly because of surging consumer prices.

“The recovery in some commodity importers has been associated with persistent or widening imbalances. Inflation rates are above or close to target in some countries, and closing output gaps are contributing to rising domestic inflation pressures (e.g., Romania, Turkey),” World Bank’s experts say.

Romania is also associated with Erdogan’s Turkey in terms of current account deficit.

„Current account deficits have either worsened or remain persistently large amid rising oil prices and robust imports, while fiscal policy continues to be procyclical in some commodity importers (e.g., Romania, Turkey),” the report shows.

But according to WB’s experts, procyclical fiscal measures in Romania are projected to continue in 2018, without much effect.

“The effect of supportive fiscal measures in Romania, which fueled a strong pickup in growth in 2017, have gradually faded in 2018,” the report says.

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 in the first half of this year, as consumer spending loses steam and the government has lower fiscal space to nourish its wage-led growth model.

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.


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