The budget deficit and the confidence of business people

Romanian business people are confident about the evolution of the economy

Ştefan Stoica, 17.05.2024, 13:50

The Confidex index, which measures Romanian managers’ confidence in the economy, reached the highest value measured in the last four years, of 52.5, shows the latest study on this topic. Against the background of the drop in inflation, the increase in the GDP and the increased optimism of the domestic and international business environment, in relation to the evolution of the economy, the value of the index exceeded the previous maximum of 50.2, recorded in the first half of last year.

According to the study, the share of managers who are optimistic about the state of the Romanian economy has risen to 34%, compared to 26% in the previous semester. However, 38% of them remain cautious. The figures are an indicator of the resilience, flexibility and adaptability of the Romanian business environment to the abrupt changes in market conditions they have faced in recent years, starting with the COVID-19 pandemic, followed by the increase in energy prices, then the war in Ukraine, the tax changes and the inflationary wave that has not yet ended, the Confidex study shows. According to the study, service companies are the most optimistic, followed by IT, construction and trade. At the opposite pole, businesses in agriculture, energy and industry have a more cautious approach.

On the other hand, Romania made significant progress in reducing the gap with developed countries after the year 2000, registering the fastest increase in labor productivity in Central and Eastern Europe, says Csaba Bálint, member of the Central Bank’s Board of Directors. According to him, the Gross Domestic Product per capita compared to the purchasing power reached over 75% of the European average, an evolution that was supported by the accumulation of foreign direct investments and the maintenance of a low public debt for a while.

Csaba Bálint: “All counties in Romania have made significant progress in the last almost two and a half decades in terms of GDP per capita, but regional disparities have increased. So far, we have benefited from a relatively low public debt-GDP ratio, providing room for maneuver to support economic growth, but the increase in debt has also created vulnerabilities. As Romania quickly recovered the gaps, significant imbalances appeared, led by the deepening of the twin deficits; both the budget deficit and the current account deficit have been at very high levels for many years”.

The efficient absorption of European funds is very important in the financing of investments, but budget adjustment or the discovery of own sources of economic growth are also essential, the National Bank official believes. In the spring forecast, the European Commission estimates a growth of the Romanian economy of 3.3%, but also a deficit of almost 7 percent of the GDP, the largest in the Union. (MI)