World economies
Romania is the largest electronics producer in Central and Eastern Europe and is rich in iron ore, oil, salt, uranium, nickel, copper and natural gas; and a regional leader in multiple fields, such as IT and motor vehicle production.
In the past 20years Romania has also grown into a major centre for mobile technology, information security, and related hardware research Dacia automobiles.
Romania’s top 10 exports are vehicles, machinery, chemical goods, electronic products, electrical equipment, pharmaceuticals, transport equipment, basic metals, food products, and rubber and plastics.
The economy was affected by the financial crisis of 2007–08 and shrank in 2009 by 7.1pc.
Driven by strong industrial exports and excellent agricultural harvests in 2015, the economy grew by 3.9pc.
The reforms undertaken by the coalition government formed in June 2017 lay down priorities for 2017-20 including investment in infrastructure, health care, education, job creation, and small and medium enterprise development, in addition to tax and pension reforms.
In the first-quarter of 2017, annual economic growth accelerated to 5.7pc on the back of strong consumption and further to 6.1pc in the second-quarter on the back of strong performance of the industrial sector and rising consumption.
The second-quarter’s impressive growth demonstrates the country has benefited from a healthy eurozone and a stronger global economy.
The rapid growth was spurred by strong consumer spending. Households have been supported by wage hikes for public sector employees, low overall unemployment and cuts in the VAT.
However, concerns about governance and weak administration limit Romania’s competitive advantages.
The finance ministry analysts forecast 2017 growth at 5.6pc based on expectations of a more robust performance across sectors while Raiffeisen Bank Romania forecasts 2017 economic growth at 4.9pc.
FocusEconomics panellists expect the economy to slow slightly in the second-half, but will continue to be supported by strong domestic demand.
They predict an expansion of 5.2pc in 2017, mainly driven by households’ consumption before decelerating to 3.8pc in 2018.
On the fiscal side, the ruling coalition had announced changes to major taxes due in 2018, including replacing a corporate flat tax of 16pc on profit with a progressive tax on turnover.
But after sharply negative market reaction and criticism from local and foreign investors, it has now scrapped a plan to tax companies’ turnover. But the finance ministry was still assessing a planned solidarity tax for top earners.
Romania’s 2017 budget based on projections of 5.2pc economic growth sets a deficit equivalent to 2.99pc of GDP.
The Economist, however, estimates that budget deficit will exceed the ceiling of three per cent of GDP, reaching 3.2pc in 2017.
The European Commission expects Romania’s to run the EU’s largest deficits this year and next at around 3.9pc of GDP. The headline general government balance is projected to reach a deficit of 3.5pc and 3.7pc of GDP in 2017 and 2018.