Romania’s statistics office confirmed on September 7 the economic slowdown to 1.1% y/y growth in Q2, further providing details about its source: the final consumption eased to 1.1% y/y from 6.9% y/y in Q1, reaching the slowest annual growth since the Covid-19 restrictions.

The plunge of inventory stock accounted for 1.1% of the quarter’s GDP and made an important negative impact on the overall GDP growth: -4.0pp (06.1pp in Q1), possibly as a result of the inventory value revaluation.

Gross fix capital formation remains robust (+11.7% y/y) and contributed 3pp to the overall annual GDP growth (+2.1pp in Q1).

On the upside, the subdued domestic demand eased the pressure on the country’s external balance, and the net imports accounted for only 3.9% of total domestic demand (consumption and investments), down from 4.0% in Q1 and 6%-7% in the first three quarters last year. 

On the GDP formation side, the industry continued its slowdown (-4% y/y in Q2 after -2.3% y/y in Q1), but the volume of services to households also eased to +0.9% y/y after +3.8% y/y in Q1 and over 8% y/y in the first half of 2022.

In the first two quarters of 2023, the GDP increased by 1.7% y/y, and in the four quarters ending in June 2023, it advanced by 3.1% y/y, down from +4.1% y/y calculated at the end of March. The Government sketched its 2023 budget planning based on hope for 2.8% economic growth.

Independent analysts, disappointed by the Q2 figures, lowered their projections. In a research note, ING says it expects 1.5% growth this year (admittedly below the consensus forecast) but also a recovery to 3.7% y/y in 2024 amid strong wage data and the approaching elections.

“Looking ahead, we expect growth to remain weak in the second half of the year and the economy to grow by only 1.5% y/y in 2023,” the bank’s note reads.

ING analysts point to the weak retail sales readings in July (+1.2% y/y) but also argue that real wage growth should provide support in the second half of 2023 and limit the losses ahead.

iulian@romania-insider.com

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