New warning about a financial crisis: Romanian economy will hit hard a wall, will be shattered, Senate economic committee chairman says

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Romania imports much more than exports, so the trade deficit has grown alarmingly. During January 1 – February 28 it reached EUR 1.657 billion, by EUR 398.1 million larger than the one in the similar interval in 2017.

Senate Economic Committee Chairman, PNL’s Florin Citu, says the main reason is the artificial increase of demand through populist decisions, such as the promises to increase wages, ziare.com reports.

It is the second warning this week regarding the allegedly coming crisis. On Wednesday, BNR Chief Economist, Valentin Lazea, warned about a new world economic crisis that will hit Romania without mercy. In Lazea’s view, Romania is most exposed. The main issue of the current account deficit, Romania is on top positions in this regard. “The current account deficit is the reason we’ll be most vulnerable when the world crisis will come,” Lazea said.

In his turn, Florin Citu explains his point of view: “the increase of the trade deficit is related to the economy’s structure, obsolete and largely controlled by the state. All of a sudden, it has been under the pressure of higher demand, artificially stimulated. Our economy cannot give an immediate reply to such changes and the demand has been artificially stimulated, with promises about higher wages. The demand had to be met from some sources and, of course, the source was the imports.”

A second aspect stressed by Citu is about the sort of products imported. “We import high quality products, expensive ones, which could not be produced in Romania at the same standards, over short term. Not without investments and market economy. This problem will be here for a long time,” Senator Florin Citu said.

Imported goods on loans

And the main issue is that the money for the imported goods comes from loans. The consumption is supported by loans. The banks have most to win from this situation, he added.

“The money for imported goods comes from loans. The consumer loans have grown very much. This is the paradox: wage increases were promised, but the consumption is supported by loans,” Citu said.

He added that the state itself has increased budget expenditures based on loans. The banks take advantage of the developments during the past year.

“The demand for loans has increased hugely lately. And the state borrowed a lot of money,” Senator Florin Citu said.

On the other hand, he claims that the people with low and average earnings will be most affected. “When the economic growth will slow down, the most affected will be the people with low and average earnings. Now we are hiding behind the economic indicators. (…) A prudential economic policy is needed. When you have economic growth, you should register budget surplus. We have programmes such as ‘The First House’ which allowed people with low and average earnings to get loans. The economic policies during the past 2-3 years have transferred the economic risk to the persons with low and average earnings, they will not be protected when the economy turns downwards,” Citu said.

Huge risks, crisis to come in 1-2 years

The Senator also said that, when the economy will slow down, the deficit will triple, the unemployment rate will skyrocket, the public debt will be large, the interest rates will grow.

“The economic risk is in the pocket of people with less money, they will lose a lot if the economy will decrease. Huge budget deficit and huge public debt mean more taxes for the people. And we will again face a period when we have to strap the belt and to look for loans in order to pay the pensions and wages,” the Senator said.

Florin Citu warns that, in the coming year or in two-year’s time, at the most, a new economic crisis is coming, adding that the governance has learned nothing from the previous crisis. It remains to be seen if the crisis will be larger or of the same dimension as the one in 2008.

“It’s obvious, from my point of view, looking at the economic developments after 2015, that we haven’t learned anything from 2006-2007 and the crisis during 2008-2010 passed by us, we learned nothing and it will come again. The probability to face a crisis is very high. The only question mark is how large will the crisis be. (…) In my view, there’s no doubt we will face an economic crisis in the next 12-24 months,” Florin Citu said.

He claims the economy is already gasping and the Government should be cautious.

“The economy is gasping. The inflation rate is on the most rapid growth in the past years. The inflation rate signals that the economy is overheated and, if not slowed down, will hit hard a wall and will be shattered. There are indicators: growing deficits, high inflation, depreciating national currency, increasing interest rates. All these require prudence from the Government, the bombastic messages, such as everything is going well, do not work,” Florin Citu said.

 

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