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TRANSCRIPT
1
Romania: Post-crisis performance and current challenges
Mugur IsărescuGovernor
Bucharest, 31 May 2019
AmCham CEO Forum
2
GROWTH, CONVERGENCE AND SUSTAINABILITY
3
Romania registered an impressive post-crisis performance Average annual growth rate of 4.6 percent in the last five years
The advance seen in recent years was primarily driven by consumption High consumption rates were accompanied by strong imports
In spite of high export growth rates, this caused a significant current account deficit widening
To preserve this growth trend, economic policies should focus on its sustainability There is no substitute for a coherent mix of macroeconomic policies
and structural reforms
Romania’s economy is constantly growing
4
After several consecutive years of economic growth, Romania’s GDP currently stands well above the pre-crisis level
4.7
8.0
7.2
9.3
-5.5
-3.9
2.0
2.1
3.5
3.4 3.
9 4.8
7.0
4.1
5.5
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
f
100
110
120
130
140
150
160
170
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
2016
Q1
2016
Q3
2017
Q1
2017
Q3
2018
Q1
2018
Q3
lei billion, 2008 prices (s.a.)
pre-crisis level
2018
Q4
Real GDP
annual change (%)
Source: NIS, National Commission for Strategy and Prognosisf) forecast
5
Romania’s economic growth was significantly above the EU average,chiefly due to consumer demand
0
2
4
6
8
IT BE DK DE UK FR EL PT FI SE ES HR LU NL AT CZ BG LT EE CY RO SK SI LV HU PL MT IE
-3
0
3
6
9
-3
0
3
6
9
2011
2012
2013
2014
2015
2016
2017
2018
net exportchange in inventoriesgross fixed capital formationfinal consumptionreal GDP (rhs)
annual change, %contributions, pp
Contributions to economic growth in Romaniaannual change, %
EU28 = 2.0%
Economic growth in EU Member States in 2018
Source: Eurostat, NIS, NBR calculations
6
Worsening of external imbalance on the back of robust domestic absorption
-11.5
-4.6
-5.1 -5.0 -4.8
-1.1-0.7
-1.2 -2.1-3.2
-4.5
-16
-12
-8
-4
0
4
8
12
-16
-12
-8
-4
0
4
8
12
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
current account balancehousehold final consumption (rhs)domestic absorption (rhs)
% of GDP
-18
-15
-12
-9
-6
-3
0
3
2014
2015
2016
2017
2018
3M 2
018
3M 2
019
consumer goodscapital goodsintermediate goodsgoods not elsewhere classifiedgoods deficit
Balance on trade in goods
EUR bn., fob - fob*
+33%
Source: NIS, Eurostat, NBR, NBR calculations
Domestic absorption and external balance
RO
-10
-5
0
5
10
15
-10 0 10 20
OX: current account balance (% of GDP), 2017OY: current account balance (% of GDP), 2018
Current account in EU Member States
annual change, %
*) according to BPM6, goods under processing trade arrangements are excluded
7
Romania has certainly come a long way in terms of economic convergence Significant increase in per capita GDP as a share of the euro area average
(based on PPS), from 31.3 percent in 2005 to 60.4 percent in 2018
Practical experience has showed us that the Eurozone is not a “convergence club” A high enough level of real convergence (in addition to compliance with the
nominal convergence criteria) is needed when joining the euro area
The level of convergence should increase in a sustainable manner The pace of this process should be in line with the economic fundamentals
A durable economic growth is extremely important alsofrom the perspective of euro adoption
8
Significant progress in terms of real convergence, but the process is far from completion
0
20
40
60
80
100
120
MT CZ SI CY LT EE SK PL HU LV RO HR BG
2000 2018 the year before euro adoption
GDP per capita (PPS) as a share of EA average, %
Source: EC
9
FINDING THE RIGHT BALANCE BETWEEN CONSUMPTION AND INVESTMENT
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A short-term focus on economic policies ought to be avoided, as it leads to suboptimal outcomes The adequate approach is to ensure a rebalancing, not by discouraging
consumption, but by stimulating investment
Promoting investment is also a way to reduce development gaps between Romania’s regions These imbalances can be mitigated, first and foremost, through
investment in infrastructure (for instance, the construction of highways is essential for connecting Romania’s regions)
The concern for durable growth should prompt a switch to policies aimed at fostering investment
11
NWGDP/capita, euro (2017): 8,600
Population (1 Jan. 2018):2.56 mill. pers.
WGDP/capita, euro(2017): 10,200
Population (1 Jan. 2018):1.78 mill. pers.
CentreGDP/capita, euro(2017): 9,100
Population (1 Jan. 2018):2.33 mill. pers.
NEGDP/capita, euro(2017): 5,900
Population (1 Jan. 2018):3.22 mill. pers.
SEGDP/capita, euro(2017): 8,100
Population (1 Jan. 2018):2.42 mill. pers.SW
GDP/capita, euro(2017): 6,900
Population (1 Jan. 2018):1.95 mill. pers.
SGDP/capita, euro (2017): 7,700Population (1 Jan.2018): 2.97 mill. pers.
B-IF
B-IF(Bucharest-Ilfov):
GDP/capita, euro (2017): 22,000
Population (1 Jan. 2018):2.30 mill. pers.
Source: Eurostat
In 2017, the wealthiest region in Romania was almost four times richer than the poorest one
12
LOOKING FOR A WAY OUT OF A LABOUR MARKET DILEMMA
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On the one hand, they cannot be considerably below those in other economies, as this would lead to a labour force drain
We are facing an emigration problem today, as a significant percentage of the population have left their homeland for other EU Member States
On the other hand, if wages increase too much, attracting investment may become a problem
Wages need to go up, but they should remain compatible with preserving competitiveness
The key is to increase wages at an adequate, sustainable pace and only by boosting productivity
The adequate path of the wage level in the Romanian economy is the subject of heated debate
14
Labour market tightening, with pay rises additionally fuelled by institutional factors, via the minimum wage and the budgetary sector wage
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Q1
2018
Q1
2019
Q1
number of employeeseconomy-wide
labour market tightnessindicator (rhs)
0
6
12
18
24
30
36
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
2016
Q2
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
economy (total)private sectorbudgetary sector
annual change (%)
Net real wageNumber of employees economy-wideand labour market tightness
annual change (%) s.a.
Source: NIS, NBR calculations
15
KEEPING THE EXTERNAL DEFICIT IN CHECK
16
Increase of ULC in recent years threatens competitiveness
-20
-10
0
10
20
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
2016
Q2
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1*
ULC measures – variation band ULC measures – average value
annual change (%)
Source: Eurostat, NIS, NBR estimates
Unit labour cost developments
Note: ULC measures include the annual dynamics of unit labour costs economy-wide (based on both the number of persons employed and the hours worked) and unit wage costs in industry. In case of unit wage costs in industry, starting January 2018 (until December 2018), the annual dynamics of the gross wage are adjusted for the effect of changing the way social contributions are leviedand their overall level (from 16.5 percent and 22.75 percent for employees and employers respectively to 35 percent and 2.75 percent), as well as of the decline in income tax from 16 percent to 10 percent, so that the resulting values should reflect developments in unit labour costs.
*) data available only for unit wage costs in industry
17
To the extent to which the upward path of wage costs is too steep, it gets very difficult to preserve competitiveness
If the Romanian companies are unable to gain market shares in the tough competition with rivals, the gap between imports and exports widens, causing the deepening of the trade deficit and hence of the current account deficit
The latter is already at a level that raises concerns, also in terms of its financing by flows deemed stable (such as FDI and European funds), which have no longer fully covered it
The wage matter is also closely linked to ensuringa balanced external position
18
Romania’s external imbalance is singular in the region in terms of its size-8
.7
-10.
5
-13.
6
-11.
5
-4.6
-5.1 -5.0 -4.8
-1.1
-0.7 -1
.2
-2.1
-3.2
-4.5
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
-15
-10
-5
0
5
10
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Czechia Hungary
Poland Romania
% of GDP
Current account balance: regional comparisonsCurrent account balance: Romania
% of GDP
Source: NIS, NBR
19
However, Romania’s current account deficit has been mostly financed from stable capital inflows
-12
-9
-6
-3
0
3
6
9
12
2016 2017 2018
current account loans stable flows* volatile flows** other flows
-4
-3
-2
-1
0
1
2
3
4
3M 2018 3M 2019
EUR bn., balanceEUR bn., balance
*) direct investment and capital account**) portfolio investment and deposits
"+" inflows; "-" outflows
Source: NBR
20
Inflation targeters in the region record monetary policy rates and interbank rates below the inflation rate;
in 2018, Romania posted the widest fiscal deficit and external imbalance
Annualinflation rate
(%, April)
Monetary policy rate
(%, 29 May)
3M interbank rate
(%, 29 May)
Budget balance
(% of GDP, 2018)
Balance on trade in goods
(% of GDP, 2018)
Current account balance
(% of GDP,2018)
Czechia 2.8 2.0 2.19 0.9 4.1 0.3
Hungary 3.9 0.9 0.20 -2.2 -1.1 0.4
Poland 2.2 1.5 1.72 -0.4 -1.0 -0.7
Romania 4.1 2.5 3.26 -3.0 -7.3 -4.5
Source: Ameco, Bloomberg, Eurostat, NCBs, national institutes of statistics
21
It is essential to keep macroeconomic imbalances in check and to promote structural reforms so that the Romanian economy does not witness major vulnerabilities in a global environment marked by so many uncertainties
To make forecasts in such an environment is not an easy task, but one thing is sure: it takes a lot of economic policy wisdom to sail safely in waters that are not exactly tranquil
As Abraham Lincoln once said, “The best way to predict your futureis to create it”
Conclusions