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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
2 Source: European Commission
-3
-1
2
4
6
8
10
2011 2012 2013 2014 2015 2016 2017
pp
s o
f G
DP
Inventories Net exports Investment Consumption RO GDP growth rate
Strong income convergence but gap to EU level still wide
30
40
50
60
70
80
90
100
05 07 09 11 13 15 17 19*
GD
P p
er
ca
pita
in
pp
s (
EU
28
= 1
00
)
Regional peers range ( BG, HU, PL, CZ, SK, SI)
Peer average
Romania
3 Source: European Commission
Fiscal stimulus when GDP above potential
4
-6
-5
-4
-3
-2
-1
0
1
2
10 11 12 13 14 15 16 17* 18* 19*
% o
f G
DP
Structural balance Output gap
Source: European Commission
… constrains monetary policy
5
-2
0
2
4
6
8
10
12
-2
0
2
4
6
8
10
07 08 09 10 11 12 13 14 15 16 17* 18* 19*
%
% o
f G
DP
General government deficit HICP inflation (rhs)
Source: European Commission
Public debt set to increase at the highest pace in the EU
6 Source: European Commission
BG
HU
PT
IT
EE
PL RO
FR
0
20
40
60
80
100
120
140
0 20 40 60 80 100 120 140
Pu
blic
de
bt
as a
% o
f G
DP
in
20
28
Public debt as a % of GDP in 2017
Minimum wage growth has raced ahead of productivity
7 Source: European Commission
70
90
110
130
150
170
190
210
09 10 11 12 13 14 15 16 17
2009S1=100
Minimum wage Labour productivity (hours worked)
A widening current account deficit
8
-20
-15
-10
-5
0
5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
% o
f G
DP
Current account balance Net lending/borrowing (CA+KA)
Source: National Bank of Romania
Investment rates above EU levels but declining
9
0
5
10
15
20
25
30
35
40
06 07 08 09 10 11 12 13 14 15 16 17 18 19
% o
f G
DP
Romania public investment Romania private investment
EU28 excl RO public investment EU28 excl RO private investment
forecast
Source: European Commission
Business environment not conductive to investments
10
Corruption perceptions from businesses Flash Eurobarometer 2017
Global Competitiveness Index 2017-2018
0
1
2
3
4
5
6
7Institutions
Infrastructure
Macroeconomic environment
Health andprimary
education
Highereducation and
training
Labor marketefficiency
Financialmarket
development
Innovation
Romania EU-28
Source: World Economic Forum 2017 Source: Flash Eurobarometer 2017
Quality of public investment key for potential growth
11
High rate of public investment…but perceived quality of infrastructure remains low
AT
BE
BG
HR
CY
CZ
DK
EE
FI FR
DE
GR
HU
IE
IT
LV
LT
LU
MT
NL
PL
PT
RO
SK
SI
ES
SE
UK
2
3
4
5
6
3 4 5 6
Pu
bli
c in
ve
stm
en
t, 2
00
7-1
7 a
ve
rag
e, %
o
f G
DP
Quality of infrastructure (index 0-7)
01234567
Overall
infrastructure
Roads
Railroad
infrastructure
Port
infrastructure
Air transport
infrastructure
Electricity
supply
Electricity and
telephony
infrastructure
RO EU-28
Source: World Economic Forum 2017
Economic sentiment deteriorating despite strong growth
12
Eco
no
mic
se
ntim
en
t in
dic
ato
r
100
105
110
115
120
1.5
2.5
3.5
4.5
5.5
6.5
7.5
16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1
Ind
ex
y-o
-y %
ch
an
ge
GDP - EU GDP - RO ESI - EU (rhs) ESI - RO (rhs)
Source: European Commission
Policy unpredictability hinders long term economic decisions
13
July 2017 • 25% increase of public sector wages
November 2017
• Social security contribution shift
• Cut of personal income tax
Further consequences
• Local authorities
• IT, R&D sectors
Reform reversals undermine credibility of policy-making
14
Judicial Significant progress
since accession…
… risks being undone by
recent developments
SOEs Corporate
governance law adopted
in 2016…
… weakened by significant amendments
in 2017
2nd pillar pension
Multi pillar pension reform
adopted in 2008…
… but contribution to 2nd pillar
cut to 3.75%
Link to the 2018 country report: https://ec.europa.eu/info/publications/2018-european-semester-country-reports_en
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