Romania’s economic performance in the first quarter of this year was better than expected, marking a growth of 4.2 percent. Although it is unlikely that this pace to be sustained throughout the year, the outlook for 2015 remains quite optimistic, according to the June 2015 issue of the EY Eurozone Forecast (EEF), a press release informs on Monday.
“If Eurozone’s returning is keeping on the same coordinates, the prospect of Romania’s GDP growth is 3.1 percent in 2015 and 3.2 percent in 2016, with the opportunity to overcome these levels after 2017,” EY barometer shows.
Domestic consumption grew at real level of a rate that has not been reached since 2008, registering a quarterly growth of 2.6 percent in the last quarter of 2014. These encouraging data continued this year too when there was an increase in wages on average by almost 7 percent in January and February, compared to the same period last year.
According to EY report, the domestic consumption has growth prospects by more than 4 percent in 2015, after the expansion of 5 percent in 2014. The significant increase of salaries of over 6 percent, along with low inflation have strengthened during this period the purchasing power of Romanian consumers.
“The consumption is now the main growth driver in Romania, after a long period of stagnation that followed the global crisis – a period during which the domestic consumption in Romania decreased by approximately 10 percent. Clear upward trend shows a higher confidence of the population in the economy and rising real wage levels. We also expect investment to grow in their turn, although the size of the positive development will strongly depend on Eurozone perspective,” Bogdan Ion, Country Managing Partner EY România stated.
Eurozone is experiencing its strongest period of growth since 2011
As regards the Eurozone’s positive start to 2015 – with Q1 GDP growing by 0.4 percent on the quarter, stronger than the US or the UK – suggests that consumers are responding to lower energy prices according to the same EEF data. The forecast also predicts that the recovery will become more broad-based, with growth forecast at 1.6 percent in 2015 and then 1.9 percent for 2016.
Businesses are preparing to invest, with increasingly positive business surveys and loans data in recent months. The EEF expects total investment to grow 1.1 percent in 2015, before accelerating to almost 3 percent in 2016 – 2017 but then easing to 2.5 percent in 2018 – 2019. This is well short of pre-crisis rates of investment growth, but since much of the latter was accounted for by housing, a slower pace of capital accumulation need not necessarily imply lower future output growth.
Quantitative easing will help keep borrowing costs low for businesses, governments and individuals in the Eurozone this year and next. However, the possibility of a Greek exit from the euro may continue to overshadow financial markets.