Romania’s annual GDP growth will be moderate in 2024, at 1.8%, well below initial economic forecasts of 3%, despite the positive trends recorded in the first half of the year – the increase in domestic demand, mainly stimulated by real growth of the population’s incomes, as well as the gradual reduction of inflation – and which will be preserved in the coming period, believes the team of economists of the Faculty of Economic Sciences and Business Management (FSEGA) of Babeș-Bolyai University (UBB) from Cluj-Napoca, the one that runs the Romanian Economic Monitor (RoEM) research project.
In September 2024, the National Institute of Statistics published provisional data on Romania’s economic growth in the first six months of this year, according to which Romania’s GDP registered an increase of 0.8% in the second quarter compared to the first quarter, while that in the first quarter an increase of only 0.5% was observed. While these figures might suggest a modest acceleration in economic growth, they are actually below analysts’ expectations, which portends weaker economic growth for the whole of 2024 than expected earlier this year, RoEM research shows.
“Given these developments, our team revised the forecast for Romania’s GDP growth in 2024, reducing it from the level of 3%, estimated at the beginning of the year, to 1.8%, which already includes the effects of weaker economic performance from the first half of the year. Moreover, this growth rate could decrease even further if new unforeseen events occur compared to those of the first semester. So, in addition to our current forecast of 1.8%, the balance of economic risks until the end of the year leans more downward”, explained Levente Szász, vice-rector of UBB Cluj-Napoca, coordinator of the Romanian Economic Monitor team.
In the first half of this year, in Romania, there was an increase in domestic demand, mainly stimulated by the real increase in the population’s income (including the increase in pensions from the beginning of this year, respectively the increase in the minimum wage in the economy in the last quarter of 2023) , as well as the gradual reduction of inflation. Although these trends continue in the second half of this year (for example, the increase of the minimum gross salary to 3,700 lei, starting from July 1, 2024, or a new increase in pensions starting from September 2024), the RoEM team of economists believes that less favorable news comes from the corporate sector.
“Statistics suggest that firms are failing to fully capitalize on the increase in demand by expanding their offering in the local market. Thus, the increased demand is mainly covered by imports, which has a less favorable and indirect impact on Romania’s economy. This phenomenon is also reflected by the negative contribution of the net exports component to Romania’s GDP in the first two quarters of the year. Even if investments, especially those in infrastructure and those financed from European funds, add something to the evolution of the economy, they only manage to keep GDP growth in positive territory, but at a modest level,” Levente Szász added.
Regarding the production sector, the situation is similar, the RoEM team of economists believes: all sectors of economic activity make modest, and in some cases even negative, contributions to the evolution of Romania’s GDP this year.
“Agriculture has been severely affected by this summer’s drought, particularly in terms of maize crops, and this impact will be felt in economic indicators in the second half of the year. The industry continues to follow the negative trend of the post-pandemic period, amplified by the stagnation of the economy of Germany, Romania’s most important commercial partner. Construction is currently being supported by government investment, but the residential sector is showing signs of weakness, which portends a smaller contribution from this sector to GDP growth compared to its much larger contribution last year. The services sector, which played a key role in the post-pandemic economic recovery, made only a minimal contribution in the first half of 2024. The problems in the IT sector are an eloquent example of this, and the negative trends seem to persist in the period next”, according to the analysis of Romanian Economic Monitor economists.