Country Report 2018

Romania

István P. Székely
Director
European Commission, DG Economic and Financial Affairs

Bucharest, 11 April 2018

European Semester
 Robust growth fuelled by private consumption

10

6
pps of GDP

-1

-3
2011 2012 2013 2014 2015 2016 2017

Inventories Net exports Investment Consumption RO GDP growth rate

Source: European Commission

2
Strong income convergence but gap to EU level still wide
100

90
GDP per capita in pps (EU28 = 100)

80

70

60

50

40

30
05 07 09 11 13 15 17 19*

Regional peers range ( BG, HU, PL, CZ, SK, SI)

Peer average
Romania

Source: European Commission 3

 Fiscal stimulus when GDP above potential

-1
% of GDP

-2

-3

-4

-5

-6
10 11 12 13 14 15 16 17* 18* 19*

Structural balance Output gap

4
Source: European Commission
 … constrains monetary policy
10 12

10
8

8
6
% of GDP

%
4
4

2
2

0
0

-2 -2
07 08 09 10 11 12 13 14 15 16 17* 18* 19*

General government deficit HICP inflation (rhs)

5
Source: European Commission
Public debt set to increase at the highest pace in the EU
140
IT
120
PT
Public debt as a % of GDP in 2028

FR
100

80
RO HU
PL
60

40

EE
20
BG
0
0 20 40 60 80 100 120 140
Public debt as a % of GDP in 2017

6
Source: European Commission
Minimum wage growth has raced ahead of productivity

210 2009S1=100

190

170

150

130

110

90

70
09 10 11 12 13 14 15 16 17

Minimum wage Labour productivity (hours worked)

7
Source: European Commission
 A widening current account deficit
5

-5
% of GDP

-10

-15

-20
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Current account balance Net lending/borrowing (CA+KA)

8
Source: National Bank of Romania
 Investment rates above EU levels but declining

40
forecast
35

30

25
% of GDP

20

15

10

0
06 07 08 09 10 11 12 13 14 15 16 17 18 19

Romania public investment Romania private investment

EU28 excl RO public investment EU28 excl RO private investment

9
Source: European Commission
 Business environment not conductive to investments

Corruption perceptions from businesses

Global Competitiveness Index 2017-2018
Flash Eurobarometer 2017

Institutions
7
6
Innovation 5 Infrastructure
4
3
2
Financial 1
Macroeconomi
market 0
c environment
development

Health and
Labor market
primary
efficiency
education
Higher
education and
training

Romania EU-28

Source: Flash Eurobarometer 2017 Source: World Economic Forum 2017

10
 Quality of public investment key for potential growth

High rate of public investment…but perceived quality of infrastructure remains low

6
Public investment, 2007-17 average, %

EE
Overall
infrastructure
5 RO 7
Electricity and 6
LV
telephony 5 Roads
PL
4
BG CZ SE infrastructure
SI 3
LT 2
of GDP

HU HR
4 LU FI 1
SK
GR FR
NL 0
Electricity Railroad
DK supply infrastructure
ES
AT
3 MT
CY PT
IE UK Air transport Port
IT infrastructure infrastructure

BE
DE
2
3 4 5 6 RO EU-28

Quality of infrastructure (index 0-7)

11
Source: World Economic Forum 2017
Economic sentiment deteriorating despite strong growth

7.5 120

6.5
115
y-o-y % change
Economic sentiment indicator

5.5

Index
4.5 110

3.5
105
2.5

1.5 100
16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1

GDP - EU GDP - RO ESI - EU (rhs) ESI - RO (rhs)

12
Source: European Commission
Policy unpredictability hinders long term economic decisions

July 2017 • 25% increase of public sector wages

November • Social security contribution shift

2017 • Cut of personal income tax

Further • Local authorities

consequences • IT, R&D sectors

13
Reform reversals undermine credibility of policy-making

Significant … risks being

progress undone by
Judicial since recent
accession… developments

Corporate … weakened
governance by significant
SOEs law adopted amendments
in 2016… in 2017

… but
2nd pillar Multi pillar
pension reform contribution
adopted in to 2nd pillar
pension 2008… cut to 3.75%

14
 THANK YOU
Vă Mulțumesc

Link to the 2018 country report:

https://ec.europa.eu/info/publications/2018-
european-semester-country-reports_en

15