Romania’s economic growth accelerated in the first quarter of this year, boosted by higher domestic consumption after VAT rate cut.

Romania’s gross domestic product (GDP) increased by 4.3% in the first quarter of the year (Q1 2016) compared to the same period of 2015, as a gross series. The seasonally adjusted series shows a 4.2% increase.

When compared to the previous quarter, the GDP went up by 1.6% in Q1 2016, according to the first estimates presented on Friday, May 13, by the National Statistics Institute (INS).

The INS will release the GDP breakdown on July 7. The detailed data will show where the growth in the first quarter came from. However, other available data show that the increase was mainly driven by consumption.

“High frequency indicators have been mixed for the first quarter, with industrial production having its worst quarter since 2009, the Economic Sentiment Indicator (ESI) disappointing, but consumption accelerating. We expect consumption to remain the main driver as disposable income received another boost from tax cuts,” according to ING Bank’s analysts.

All ingredients of excess demand are in place, according to ING analysts, who name wage growth, negative inflation among the factors that have driven retail sales up. Moreover, companies have increased their investments.

The better than expected evolution of the Eurozone economy, and especially of the German economy, which takes 20% of Romania’s exports, may have also contributed to the higher than expected GDP growth in Romania in Q1 2016.

“Supply side, we expect services (mainly trade, but also IT&C) to have the largest contribution, while confidence indicators suggest negative contributions from industry and construction,” according to ING.

Retail trade turnover, up 19% in Romania in the first quarter

editor@romania-insider.com