The Future Starts Today – Romanian Economy between Prospects and Uncertainty

For the seventh year in a row, the EU economy has been on an upward trend

România Internațional, 12.07.2019, 13:26

For the seventh year in a row, the EU economy has been on an upward trend, with all the member countries economies growing, despite less favorable conditions and uncertainty at global level, a European Commission communiqué reads. The employment level has reached a record high, and the rate of unemployment has never been lower. However, there are still major gaps between countries, regions and categories of population. Valdis Dombrovskis,the Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, has stated: “The European Semester has made a real contribution to improving the economic and social situation in Europe. Yet, some important challenges remain, and now risks to the economic outlook are growing” . According to the European official, “It is worrying to see reform momentum weakening in some countries. We call on all Member States to put new energy into making our economies more resilient and into supporting growth that is both sustainable and inclusive. Better targeted investment can make a significant contribution to achieving these objectives” the European official has also stated.

Romania, which in February was included in the group of 13 EU member countries under the Macroeconomic Imbalances Procedure, registered an economic growth rate of 5% in the first semester of 2019, but both the Commission and the IMF have warned that imbalances have grown, just like the current account and fiscal deficits, and inflationist pressure is building up. Lidia Moise, editor-in-chief at Reporter global , speaking on Radio Romania, said:

“Unfortunately, Romania is the only European country that is facing two major imbalances: a budget deficit, which means that we spend more than what we get from revenues, and also a current account deficit, which happens when a country spends more money on what it imports compared to the money it receives for what it exports. In Europe, the other country in the same situation is Turkey. Turkeys national currency has been under tremendous pressure, the country is faced with inflation, twin deficits and a brutal devaluation of the Turkish Lira. These twin deficits are extremely dangerous for economic stability, especially when this happens at a time of reported economic growth. Usually, when there is economic growth, one can manage to cover expenses without deepening the deficits.”

Attending in Bucharest the conference on the public presentation of the specific recommendations for Romania for the 2019 European Semester, Isabel Grilo, Head of Unit with the Directorate-General for Economic and Financial Affairs, said that, despite the fact that the Romanian economy has exceeded its potential, registering therefore a positive deficit or a positive productive difference, still, the fiscal policy has expanded too. Also, the European official said, if we look at the composition of this fiscal policy, we can see that it is not sustainable, since it is based on fiscal stimulus and consumption. It is based not so much on investment, but on deductions and staff and pension expenditure, which again stimulate consumption and are difficult to reverse. That is why the Commission has reasons to be worried about the sustainability of this growth, Ms Galo also said.

A specialized study, conducted at European level, has shown that 78% of the Romanian companies are complaining about late payments, which is a real problem when it comes to business development, hiring new personnel and revenues in general. At European level, only half of the companies are faced with this problem. That is why the Romanian business people believe that a new recession might be coming, says Simona Mincu, the representative of the company that conducted the study:

“A potential crisis seems to be imminent. Most companies foresee an economic decline and a potential recession within five years. These indicators are quite obvious not only in Romania, but also in Greece and Italy. Many companies are expecting this economic decline in about five years time.”

Besides any uncertainty, there is one thing that remains constant: Romania has a powerful tool that it can use to balance the situation, namely the huge amount of European funds it can attract.