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EFE: consumption, the single engine which supports the Romanian economic ‘ miracle’
Romania managed, by growth of salaries and tax reductions to stimulate the domestic consumption and the economic growth which in Q1 of this year reached 5.6%, the highest rate of the European Union, EFE says.
However, this ‘miracle’ in one of the poorest countries in the 28 of the EU member states gave birth to a scepticism among the experts, the majority considering it as unsustainable, EFE says.
The significant growth of the civil servants salaries, of over 20% and the minimum salary which over the last two years reached 310 euro, from 220 euro, are the main factors of the Romanian economic ‘ boom’. This is accompanied by the fact that the social-democrat government reduced the VAT for food from 24% to 9% in June 2015 while the general quota of VAT dropped from 24% to 20% in January 2016 and to 19% at the beginning of this year.
‘The economic growth is due to the significant advance of consumption fed by the growth of salaries and the diminution of taxes, but these will function on a short term’ stated for EFE the chairman of the Fiscal Council Ionut Dumitru’ Surely, if we have a growth of consumption without the support of another economic sector, then the commercial deficit will grow and that of the current account’ Dumitru said.
The commercial deficit of Romania went up to 3.36 billion euro in Q1 of 2017, with 20.3% higher than that of the similar period of 2016, and the balance of the current account had a deficit of 690 million euro, twice higher as compared to Q1 of last year.
The economic growth is correlated with that of the public deficit of Romania which grew from 1.8% to 3.2% since the end of last year until 31 March 2017, according to the European Office for Statistics.
The European Commission, in their turn, estimates that Romania will have an economic growth of 4.8% in 2017, while the government in Bucharest expects 5.6% which, if made, will lead to a GDP of 183 billion euro at the end of the year.
These macroeconomic data animated the present social-democrat government to promise salary growth for civil servants and pensioners,a strategy criticised aspopulist.
‘Salary policies with populist nuance draw serious consequences on the price of goods and competitiveness’ explained for EFE Lucian Croitoru, adviser for monetary policy with the National Bank of Romania.
In 2015, over 1.35 million of the 4.6 million employees of the country worked in the public administration.
Croitoru considers that the salary increase was adopted despite the public investments, which dropped by 60% in the budget for 2017. ‘ You cannot force the getting out of the category of the countries with cheap work force without improving the productivity’ Croitoru said.
In the past years, numerous companies such as Continental or Renault moved a part of the production in Romania, due to reduced salaries but the present situation made many of them to think of leaving.
According to the Association of Small and Midlle-Size entreprises, a third of the companies which they represent reduced the number of employees or closed down, starting with October 2015, especially due to the costs, as well as due to the lack of personnel, due to migration.
The rate of unemployment reached in August 5.1% (almost 466,000 unemployed), a historical minimum, although, according to Dumitru the data do not reflect the reality. ‘ There are many people who practice subsistence agriculture and who are not included as unemployed, and many other who migrate’ he said.
It is estimated that almost 85,000 Romanians will leave the country during this year.