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Report: Romania shows slight improvement in economic sentiment indicator (ESI) in December 2023
Romania recorded a slight improvement in the economic sentiment indicator (ESI) in December 2023, according to an Erste Group report. The ESI climbed from 101.9 in November 2023 to 102.4, primarily due to increased confidence in the services and retail sectors. However, the industrial sector reported a decline in confidence, while the construction sector recorded a slight upturn. This trend was also reflected in the pan-European ESI, which mirrored Romania’s recovery and rose from 101.9 to 102.4.
Experts had expected the economy to rebound in the last quarter of the year and the ESI values were in line with these expectations. The average ESI for Q4 2023 was 101.9, exceeding the previous quarter’s average of 100.7. Forecasts suggest that retail sales could grow again in Q4 2023. Factors such as robust nominal wage growth, falling inflation rates, a stable unemployment rate and continued job creation should provide some relief for consumers in the coming quarters.
Looking ahead to the new year, forecasts point to a recovery in GDP expansion, which is expected to increase by 3.3% compared to the estimated 2.1% in 2023. This expected growth is attributed to stronger domestic demand. Investment is expected to continue to support growth in 2024, but the inflow of EU funds could contribute more slowly compared to 2023. The sustainability of private consumption is expected to be supported by lagged effects resulting from significant real wage increases. However, the risks to the growth outlook for 2024 remain tilted to the downside. Factors contributing to this risk include potential delays in the absorption of EU funds, weakened consumer confidence amid a busy election calendar in 2024 and higher than expected inflation rates.
In terms of sector-specific sentiment shifts, manufacturing confidence witnessed a slight decrease, primarily influenced by a pessimistic outlook on expected business production despite stable order book levels and slightly lower inventories.
Conversely, the services sector experienced a surge in confidence with a significant increase in both past and expected demand. However, this increase was counteracted by a slight decline in the assessment of the current business situation.
Sentiment in the construction industry improved slightly, as construction companies’ assessment of the order backlog and expected employment increased slightly.
Retailers were also more confident in December, which can be attributed to expected future business activity and the reduction in inventories. However, previous business activity declined slightly in the same period.
In addition, the Employment Expectations Indicator (EEI) across all four sectors recorded an increase to 106.2 in December from 102.5 in November. The retail sector recorded the strongest monthly change, indicating a better employment outlook. Managers expect prices to rise in all sectors except the service sector, where prices are expected to remain stable.
As Romania navigates these mixed sentiments across sectors, the landscape for economic growth in the coming months remains uncertain, influenced by both domestic and international factors.