Romania’s economy finds itself in a “soft landing” scenario in 2023, i.e., a slowdown in economic growth, but not a recession. We are at the end of an economic cycle that began ten years ago, in which the economy grew at a rapid pace every year, allowing us to close much of the gap that separated us from the European Union average in terms of GDP per capita. But even though we are not going through a crisis, there are major problems regarding the budget deficit and the current account deficit, which must be corrected by the government in order for the country to receive the European funds from the National Resilience and Recovery Plan (PNRR), according to Business Review.
This year’s economic growth will be around 2-3%, significantly lower than last year’s 4.8%, but nevertheless, a number that demonstrates the country is not experiencing a crisis. There’s been real wage growth even in conditions of high inflation—another positive sign.
“Our GDP growth is moderate compared to previous years, but it is higher than the one in the EU and other countries,” said Eugen Radulescu, director of the Financial Stability Directorate of the Romanian National Bank (BNR), at the ZF Bankers Summit event.Moreover, the economy has proven resilient in the face of the multiple crises that have followed each other in recent years: after the covid-19 pandemic in 2020 and 2021, last year came with a war on the border between Ukraine and Russia, an energy crisis, and rampant inflation. Romania’s economy continued to grow throughout these events, with levels well above the EU average, and it will remain in the positive zone this year as well, despite the uncertainties that persist across the board.
Inflation stood at 10.3% in June 2023, slightly lower than May’s, when it was 10.4%. But while still high, it is significantly down from the levels recorded in the second half of last year, when it topped 17%. Fortunately, the BNR estimates further tempering to a level of 7-8% at the end of the year. The decline of inflation is mainly the result of the decrease in energy prices (electricity, natural gas, and fuels). But, as shown by the minutes of the last meeting of the BNR Board of Directors, the prices of consumer products remain high, especially for non-food and services, which also keeps inflation high. Companies have essentially passed on the rising costs of raw materials and wages to the consumer in order to preserve their profits—a phenomenon commonly referred to as greedflation.
“Longer-term inflation expectations of financial analysts had seen only a marginal drop in June 2023 against December 2022, thus remaining above the variation band of the target, while the consumer purchasing power had posted a relative recovery in March-April, as the annual growth rate of the average net real wage had returned to positive territory, especially following the decrease in the annual inflation rate,” the BNR meeting minutes read.
As for future developments, BNR members pointed out that the annual inflation rate would probably continue to fall over the following months, in line with the latest medium-term forecast published in the May 2023 Inflation Report, which had anticipated its drop to a one-digit level in Q3, to 7.1 percent in December 2023, and to 3.9 percent at the end of the projection horizon. The future decrease in the annual inflation rate would be driven primarily by supply-side factors, mainly disinflationary base effects and the improvement of global production and supply chains, alongside the sizeable downward corrections of some commodity prices, especially for energy, crude oil, and agri-food items, seen in the recent quarters amid the easing of wholesale markets. The base effects would continue to be manifested particularly in the energy segment, as well as in the processed food segment, thus also visibly affecting core inflation dynamics in the period ahead, while the decreases in some commodity prices would feed through gradually, according to the BNR statement.
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