Economy
Since joining the European Union, Romania has experienced rapid economic growth in the region, but which is not without risks due to the budget deficit and the country’s high level of indebtedness.
How Romania’s economy has evolved since joining the EU/Photo: pexels.com
On Europe Day, marked on May 9, UBB economists present data showing how Romania’s economic development has evolved in the period 2007-2024, i.e. since our country’s accession to the European Union.
Of course, through EU support, Romania managed to have a good economic growth in the region, but still the country’s economy is marked by risks caused by the growing budget deficit and the record level of indebtedness. In other words, Romania failed to fully capitalize on the opportunities offered by joining the EU bloc.
How the main economic indicators evolved in Romania after joining the EU
The positive evolution of economic indicators (Gross Domestic Product per capita (GDP/capita) expressed in purchasing power parity (PPP), net incomes of the population (PPS), the evolution of the balance of foreign direct investments (FDI) and the evolution of the value of exports of the countries of region) throughout the region clearly shows the overall development benefits of membership of the European community.
“Romania has shown a faster growth in the region, managing to catch up with Hungary in recent years in terms of GDP per capita, net income, respectively the volume of foreign investments”, according to the economists from the Faculty of Economic Sciences and Business Management (FSEGA) of UBB, which runs the Romanian Economic Monitor research project.
Regarding Romanian exports, the increases were less dynamic in regional comparison, but even in this case the volume tripled from 2007 onwards.
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The budget deficit rose to 2.06 of GDP after the first quarter. In a single month, the hole in the budget increased by 6.9 billion lei.
“However, all these economic growths were based on an accelerated increase in Romania’s indebtedness, the budget deficit thus remaining a major risk for the country’s economy,” the quoted source says.
Economic growth and budget deficit
Romania managed to catch up with Hungary in recent years in terms of GDP per capita, net income, but also the volume of foreign investments. At the same time, our country ranks last in Europe in terms of the value of average net salaries, and the gap with some countries in the area, such as Poland and the Czech Republic, is growing (see the graph above). Thus, the positive economic trends that contributed to the gradual increase in the standard of living in Romania were largely based on the increase in the country’s indebtedness.
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Romania’s public debt reached a new record. The debt level exceeded 52% of GDP.
According to the data recently published by the Ministry of Finance, the public debt is increasing from one month to the next, despite the measures to reduce expenses adopted by the governors.
Thus, Romania’s public debt reached 841.292 billion lei in February 2024, exceeding 52.5% of the Gross Domestic Product (GDP).
Within one month (January-February 2024), the public debt increased by approximately 40 billion lei.
In addition, in April 2024, the IMF revised down, to 2.8%, the estimates regarding the growth of the Romanian economy this year. The budget deficit rose to 2.06% of the Gross Domestic Product after the first three months of this year, the negative balance amounting to 35.88 billion lei, compared to 28.99 billion lei or 1.67% of GDP after the first two months, according to data published by the Ministry of Finance.
The European Commission forecasts a budget deficit of over 6.5% of GDP for 2024, in the case of Romania.
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Tags: UBB analysis Romania develop joining Sustained economic growth rising level indebtedness dangerous budget deficit
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