Romania’s economic growth shows signs of fatigue in Q3

Romania’s economic growth shows signs of fatigue in Q3
By Iulian Ernst in Bucharest November 16, 2021

Romania’s economic growth eased to 8% y/y in the third quarter of the year from 13.8% y/y in Q2, while the average annual growth rate for the entire January-September period was 7.1% y/y, the statistics office INS announced in a flash estimate.

The high growth rates still indicate the economy is operating in recovery mode and they incorporate significant low base effects — but more detailed analysis such as the quarterly or longer-term metrics show a visible slowdown that is likely to reverse in the coming quarters yet significant uncertainty is generated by a multitude of factors.

Already in its fifth quarter of recovery after the lockdown quarter last year, Romania’s economy exceeded its pre-crisis peak (reached in Q1, 2020) in Q2 this year and it further advanced in Q3, yet was slowing down, as some industries (automobile production, oil refining) were hit and the whole economy came under pressure from rising energy prices.

Further growth, broadly seen as 4-5% per annum in the coming years, remains for the next quarters subject to various risks ranging from more COVID-19 waves (at home and in Europe), high interest rates, high energy prices, political uncertainty (hence fiscal uncertainty) and sluggish recovery of the global production chains.

The main growth driver, expected to boost the country’s GDP over the coming years is the Recovery and Resilience Plan but, despite a front payment expected this year, more clarity is still needed in regard to the specific projects included and schedule for completion next year.

From a broader perspective, economic growth remains weak in the post-lockdown period and particularly eased in Q3. Compared to the same period in 2019 and annualised, Romania’s economic growth eased to 0.6% in Q3, down from 1.2% in Q2.

The INS estimates the quarterly growth rate in Q3 at 0.3% q/q, visibly down from 1.5% q/q (revised from +1.9%) in Q2 and 2.2% q/q (revised from 2.6%) in Q1.

As expected, the quarterly growth rates were backwards adjusted as the seasonal pattern is changing and has significantly deviated from the long-term pattern since it incorporates non-seasonal events such as the lockdown in 2020 and sudden recovery this year.