“Risks to financial stability have seen mixed developments since the previous Report, in an economic and financial environment rife with uncertainty. A slight improvement was observed in the first part of the period under review, due to better consumer sentiment, lower food and energy prices, and the recovery of economic activity in China after the most recent wave of the COVID-19 pandemic.
The risks assessed as severe concerning external developments and the worsening of domestic macroeconomic equilibria, inter alia as a result of regional and international geopolitical developments, are expected to stay flat in the period ahead,” note the central bank experts.
NBR says that Romania is still among the first EU countries in terms of the size of twin deficits, i.e. current account deficit and fiscal deficit. The fiscal deficit stood at 5.68 percent at end-2022, 1.05 percentage points lower than in the previous year, Romania being exceeded only by Italy, which recorded a deficit of 8 percent. In the first four months of 2023, the fiscal deficit widened by 0.56 percentage points against the similar year-ago period, to 1.72 percent of GDP. The current account deficit increased further, reaching 8.9 percent of GDP in 2022 Q2-2023 Q1, the highest level among Romania’s peers in the region. The growth outlook for export demand is subdued, owing to the economic slowdown in Europe and further high inflation.
the region (89 percent in Poland, 88 percent in Czechia and 86 percent in Hungary).
The EU funds absorption capacity becomes essential in an environment affected by economic growth decelerating below the previous decade’s levels, making it difficult for Romania to reduce domestic disequilibria and to support strategic sectors with a view to ensuring transition to a green and inclusive economy, along with a structural shift towards a higher value-added economy.”
Next, “human capital continues to deteriorate, so that Romania’s national wealth is at risk. The downtrend in population is accompanied by the high share of minimum wage earners, as well as by changes in the composition of employed persons by age. From 2007 to 2022, the number of employees aged between 40 and 64 rose by 50 percent, significantly outpacing the dynamics at aggregate level (+10 percent), whereas the number of employees aged between 25 and 30 dropped by around 40 percent. This development, amid the high emigration rate among youth1 and the negative natural population change, has consequences for both the level of financial intermediation and the financing capacity of budget expenditures over the medium and long term. In the recent period, companies have increasingly resorted to workers from outside Europe, with work permits being issued for the entire quota of 100,000 workers approved for 2022.”
Moreover, NBR warns that the low level of educational attainment of employees is another important vulnerability, Romania recording at end-2022 the smallest percentage of employees with tertiary education among EU Member States (24 percent, 14 percentage points below the EU average).