From the budget deficit to the European minimum wage

The IMF estimates for Romania a current account deficit of 7.5% of GDP this year and 7% in 2025

Bogdan Matei, 23.10.2024, 14:00

The International Monetary Fund downgraded its forecast regarding the growth of the Romanian economy this year, from 2.8% in April, to 1.9% in its latest report. The average annual inflation rate is expected to reach 5.3% at the end of 2024 and 3.6% in 2025, whereas unemployment should remain at 5.6% and go down to 5.4% next year. The current account deficit is estimated at 7.5% of GDP this year and at 7% next year. The European Statistical Office (Eurostat) in turn published data showing that the government deficit in the European Union has increased from 3.2% of GDP in 2022 to 3.5% in 2023, the highest levels being recorded, last year, in Italy (minus 7.2%), Hungary (minus 6.7%) and Romania (minus 6.5%). In the case of Romania, Eurostat data shows that the government deficit increased from around 88 billion Lei in 2022 to almost 105 billion Lei last year (1 euro = approx. 5 lei, e.n.). Meanwhile, government spending decreased from 40.4% of the GDP in 2022 to 40.3% last year, while revenues went down from 34% to 33.7%.

Previously, Standard & Poor’s reconfirmed the good rating of the government debt and the stable outlook of Romania. The agency warned, however, that Romania’s rating could be downgraded if the deficit continues to exceed forecasts and if other imbalances persist, such as high inflation or the current account deficit, i.e. the difference between high imports and low exports. Standard & Poor’s also predicts that the current pre-election spending, marked by increases in pensions and salaries in the public sector, will push Romania’s deficit to 7.3% this year. Since macroeconomic statistics usually fall on deaf ears in society, as many Romanians remain poor, with rampant inflation dramatically eroding their purchasing power in recent years, politicians decided to offer them some consolation. A little more than a month before the presidential and parliamentary elections, the Bucharest Chamber of Deputies adopted, as a decision-making body, the draft law on increasing the minimum wage. The law transposes a European directive that aims to improve the working and living conditions of employees. The document stipulates that the minimum gross basic salary guaranteed should be established annually through periodic updating, after consulting trade unions and employers’ associations at national level and taking into account the costs of living and other economic and social indicators. The value of the minimum gross salary is expected to stand between 47 and 52% of the average national salary. (VP)