Romania’s industrial production index increased by only 1.2% y/y in May and the average growth rate calculated for the rolling three months eased to 2.1% y/y — the weakest performance since September 2016.

Romania’s industry shows signs of fatigue after it expanded by 7.8% y/y in 2017, which was the best performance in the post-crisis decade. Tight labour market conditions — another name for industry’s focus on low wages in the context of an increasingly mobile European labour market — are showing effects. Lack of investments in key consumer goods industries (such as food processing industry) is another factor leading to low growth rates. Finally, poor structural reforms leading to the dismantling of industrial sectors (such as the chemical industry) limit the growth potential in the short and medium term despite increasingly abundant energy resources.

In Q1, the industrial output still increased by 4.9% y/y, but this was nonetheless only around half of the 9.7% surge in Q4 last year. Against the high base of the record activity levels reached in H2 last year, the annual industrial growth will predictably not return to the upper single digit area very soon.

The overall performance is indeed dragged down by the poor performance of the mining and quarrying industries: -3.5% y/y in May and on average -0.1% y/y over the past three year. Over the past year, these industries featured high volatility amid uncertain oil price dynamics, problems faced by the mining sector and fewer exploration projects in the oil and gas industry: the output of the sector as reported by the statistics office plunged by double digit rates during 2015-2016 to then rise by 10.2% y/y in 2017. As large offshore projects get underway, the mining and quarrying industries should soar in the coming years.

The output in the manufacturing sector increased by 1.9% y/y in May and 2.5% y/y on average in the past three months. This was marginally above the industry’s average. Some key industries posted negative growth rates for the three-month average, such as the food industry (-0.3% y/y), tobacco industry (-5.2% y/y) and the chemical industry (-0.3% y/y). The automobile industry reported strong 11.1% y/y growth for the period, driven by Romania’s second automobile plant (Ford) increasing its output. But the electronic and optic devices industry (largely car parts production) posted a mediocre 0.3% y/y performance as the tight labour market seems to have put an end to the steadily robust performances of previous years.