Economic success despite political obstacles. Romania overtakes Hungary and approaches Poland

Romania continues to advance on the welfare scale. The Gross Domestic Product per capita has surpassed that of Hungary and is very close to Poland and Estonia. However, it is not a performance that the Government can boast about as a result of its economic policies. On the contrary. Despite the obstacles regularly put up by the authorities and the lack of a development strategy, the economy has proven to be more resilient and dynamic than expected.

The Gross Domestic Product per capita last year reached 78% of the European Union average, according to the latest data of Eurostat. It is an indicator calculated at standard purchasing power. This is an artificial currency which removes the differences between the price levels of different countries to allow comparisons between the GDP of these countries.

It is a spectacular evolution if we refer to the time of accession to the European Union, when we were only 44% of the European average.

And it comes as a result of the sustained growth of the Romanian economy in the last two decades. In the last 24 years, the economy was in recession in only three years, and nine times the GDP advance exceeded 5%.

The European funds contributed to the economic growth, which led to the accelerated development of the economic sectors. Also, the membership of the European club made Romania’s economy more attractive in the eyes of foreign investors, who, in addition to money, also came with expertise that determined the increase in added value and productivity, which ultimately meant and higher wages.

In addition, in addition to the Capital, other strong economic, industrial and innovation centers have appeared – Cluj-Napoca, Timișoara, Oradea, Sibiu and Brașov have experienced impressive development in recent years. The capacity of these cities to attract foreign investment is very high, and their educational and research environment has developed a lot.

At the same time, Romania’s economy relies more on the domestic market than the economies of Slovakia or Hungary, for example, which are much more dependent on exports. Therefore, the country is less exposed to international market fluctuations and can take advantage of the opportunities of a relatively large domestic market, as is the case with Poland.

Romania also benefited from a stable leu over time, even though it also went through periods of high inflation and high interest rates.

All this allowed Romania to surpass in recent years Greece, Slovakia, Latvia and Croatia, in addition to Bulgaria, which was always further behind in terms of GDP per capita expressed in standard purchasing power parity.

And last year, we also surpassed Hungary, which stagnated at 76% of the EU average (although Eurostat’s provisional data from 2022 showed that we surpassed Hungary already that year, the final data did not confirm). In addition, we have come close to Poland (80% of the EU average) and Estonia (81% of the EU average) and we have a chance to surpass them in a few years.

Estimates show that Romania will continue to have an economic growth higher than that of the countries in the region, also helped by European and PNRR funds. Also, there are large gaps between regions, for example the one between Transylvania and Moldova, which shows that we still have a great potential for development.

It is only necessary that the politicians do not behave irresponsibly, especially in a year with four rows of elections, such as this one.

And the example of “not like that” that our politicians should pay attention to is Hungary itself, the country we surpassed last year.

For a long time, Hungary was considered our poor neighbor, and the goal of Hungarian officials was to catch up with Austria. And the first news announcing that Romania surpassed Hungary on the welfare scale caused astonishment in Budapest.

But, although it is true that the neighboring country recovered from the gap compared to the European average, the Romanian economy registered a faster convergence. Official data show that from 2013 to 2023, Hungary recovered 10 percentage points, and Romania 24 points.

And the period coincides with the intensification of the illiberal slippages in Budapest.

In addition to bringing the judiciary under control, the Orban government is accused of undermining the independence of the central bank, of siphoning off European funds and taking measures that have undermined the free market, such as capping fuel and food prices and overtaxing multinationals.

But the deviations from the rules of the rule of law caused the European Commission to block Hungary’s access to European funds and those from the Recovery Fund worth billions of euros. And the lack of these funds contributed to the poor performance of the Hungarian economy last year, when it shrank by 0.8%.

Also, the populist and anti-market economic measures led to the substantial increase in inflation, the strong depreciation of the national currency and the significant reduction of the purchasing power of the population.