Romania's economic growth eased to 7.4% YoY in the third quarter of the year (Q3) from 13.9% YoY in Q2, while the average annual growth rate for the entire January-September period was 7.1% YoY, the statistics office INS announced on December 7.

Compared to the November 14 flash estimate, this is a marginal upward revision from 7.2% YoY.

The quarterly growth rate eased to 0.4% QoQ in Q3, down from 1.5% QoQ in Q2 and 2.2% QoQ in Q1 as the base effects of the lockdown period faded away.

The figures came slightly below the consensus expectations, and the analysts already revised in November the full-year growth projections from above to below 7%.

The annual high growth rates in Q3 still incorporate significant low base effects, which will, however, further diminish in Q4.

More detailed data also confirmed expectations about agriculture being a key growth driver in Q3.

The gross value added in agriculture soared by 33.8% YoY in Q3, contributing 2.6pp to the 7.4% YoY GDP overall advance. Notably, without this performance, the quarter's GDP would have dropped in Q3 compared to Q2.

In contrast, the construction sector has dragged down the quarter's economic performance. The gross value added generated by the industry of constructions contracted by 6.1% YoY, making a 0.3pp negative contribution to the quarter's GDP dynamics.

"The data is in line with expectations, I would say, it is not a major surprise. As we expected, if we exclude agriculture, the GDP in Q3 would have decreased (QoQ), which we have noticed since the publication of the flash estimate. We currently have two sectors that are doing poorly and two that are doing well. The ones that go bad are the industry, and the constructions and the ones that go well are the agriculture and the services," said Ionuţ Dumitru, chief economist at Raiffeisen Bank Romania and former chairman of the Fiscal Council, quoted by Ziarul Financiar.

Regarding the use of external resources (net import), it remained above 5% of the total domestic consumption in Q3 at 5.3% - down from the record 6.1% in the second quarter this year but still in the region of hardly sustainable deficits.

The transfer of resources under the Recovery and Resilience Facility should, in principle, have a positive impact on the country's external balances - but they will be matched by a rise in the domestic demand as well, so eventually, the deficit must be tackled by the substitution of imports and more value-added exports, which are the final goals of the Resilience Facility.

iulian@romania-insider.com

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