A Profile of the Romanian Economy

2023 began with a series of warnings from international financial institutions that many

Corina Cristea, 12.01.2023, 16:56

2023 began with a series of warnings from international financial institutions that many

economies in recession are at risk of sliding. Even without another crisis, the growth of

the world economy this year “is slowing sharply in the face of elevated inflation, higher

interest rates, reduced investment, and disruptions caused by Russias invasion of

Ukraine, according to the World Banks latest Global Economic Prospects report. The

World Bank warns that global and national efforts are needed urgently to alleviate the

risks caused by a reduction of economic activity and the burden of debts faced by

emerging and developing economies, where the increase in investments is expected to

be below the average of the last two decades.

Speaking about the global economy in an interview for the American TV station CBS, the director of the International Monetary Fund Kristalina Georgieva said she was expecting a third of world economy to go into recession and pointed out that for the first time in the last 40 years, Chinas dynamic growth will probably be below global growth:

“For most of the world economy, this is going to be a tough year, tougher than the year we leave behind. Why? Because the three big economies – US, China and EU – are all slowing down simultaneously. The US is most resilient. The US may avoid recession. We see the labor market remaining quite strong. This is however a mixed blessing, because if the labor market is very strong, the Fed may have to keep interest rates tighter for longer to bring inflation down. The EU – very severely hit by the war in Ukraine. Half of the European Union will be in recession next year. China is going to slow down this year further. Next year will be a tough year for China. And that translated into negative trends globally. When we look at the emerging markets in developing economies, there, the picture is even direr. Why? Because on top of everything else, they get hit by high interest rates and by the appreciation of the dollar. For those economies that have high level of that, this is a devastation.

According to the head of the International Monetary Fund, the global economic growth

rate will slow down to 2.7% from 3.2% last year. As far as Romania is concerned, it will

see a 2.8% economic growth rate this year, compared with 5% last year. Economy

expert Mircea Coşea provided an overview of the Romanian economy for Radio

Romania:

“We live more by consumption, by services, and to a certain measure by agriculture. However, the latest studies made by Howard University indicate that we are top notch in the world, in 19th place, in terms of diversification and modernization of the economy. Things are debatable, because it is very hard to say to what extent Romania is a developed country, as long as the purchasing power has been constantly falling for the last few years. We have two major shortcomings that hinder our development, the current account deficit and the trade balance deficit. The truth is very clear, though: whatever they say, the Romanian economy needs reforming quickly, because it cannot cope with the major changes in the world.

In the last few year, such changes have started appearing, and 2023 will be a year of major changes from the point of view of the global model of development, according to Professor Mircea Cosea. New, important economic actors are emerging, such as India, for instance. Also, the war between China and the United States started going in the US’s favor, China missed the start. At the same time, the countries that take advantage of their domestic resources to a better measure, and reduce dependence on imports, have a lot to gain. Things are the other way around with us, says Mircea Cosea:

“Imports are very high. Domestic manufacture, especially for items that we may be successful in producing, such as foodstuffs, are not progressing. No major economic measures are taken for modernization and restructuring, in support of the real economy, the private sector. On the contrary, taxes and penalties are applied from all points of view, regarding the possibilities of feeding the budget. So, the Romanian economy, small as it is, will suffer two major shocks. On the one hand, the external shock, which is not favorable at all, the European economy is not growing, it has issues. These are not necessarily structural, we are also talking about dependence on energy and raw materials. From within, there are no major measures in the economy. We only have measures to mitigate the situation of the most disadvantaged categories, but this is not a road to development, but a means of some categories surviving to the detriment of others.

In the first 11 months of last year, Romania had a record trade balance deficit, over 31 billion Euro. Romania’s foreign trade continues to be dominated by trade with other EU member states, which account for 72% of total exports and 70% of imports.