Disquieting economic developments

Romania’s economy grew by 2% in 2023, but inflation remains a risk factor for citizens’ living standards.

Sorin Iordan, 15.02.2024, 15:00

Romania’s economy went up 2% in 2023, the National Statistics Institute announced, as opposed to an only 0.5% GDP growth rate for the EU and the Eurozone last year.

Romania’s economic growth came in the context of a smaller trade balance deficit, of nearly EUR 29 bln, over EUR 5.1 bln less than in 2022. The country’s exports exceeded EUR 93 billion last year, accounting for a 1.3% rise, while imports amounted to a rough EUR 122 bln, i.e. 3.2% below the 2022 level.

On the other hand, net average salaries reached some EUR 1,020 in December 2023, with gross figures close to EUR 1,670. Compared to December 2022, Romanians earned 15.5% more. The highest incomes were reported in the oil and coal industries, while the lowest salaries were paid in the hospitality sector.

But the rise in incomes continues to be offset by the steady increase in prices. According to the National Statistics Institute, the year-on-year inflation rate last month was 7.41%, which is 0.8% more than in December 2023.

The steepest increases were reported in tariffs for services (1.55%), followed by foodstuffs prices (1.3%) and non-food prices (0.74%). Significant tariff rises were mainly seen in airline fares, which went up by over 21%, and postal services (nearly 17.3%). Also notable are the increases in water supply and sewage services (close to 4.2%), and the prices of fresh and canned fruit and vegetables, with an average of over 3% in each case. Conversely, grain mill products and edible oil saw the most substantial price drops.

Statistics are confirming the latest National Bank forecast, which predicted an increase of the annual inflation rate at the start of this year following the introduction of new indirect taxes and charges and the increase of existing ones. The central bank expects the inflation to resume a downward trend later this year, but at a slower pace compared both to the year 2023, and with previous forecasts.

Financial analysts believe the main risks and uncertainties related to inflation are entailed by the Government’s approach of tax and revenue policies. The factors that they list in this respect are the increase of public sector salaries, the impact of the new Pension Law and the additional measures that might be implemented by the Government to carry on budget consolidation in the context of the excessive deficit procedure initiated by the European Commission. Adding to these risks are the war in Ukraine, the conflict in the Middle East and the economic developments in Europe. (AMP)