GRAPHICS Confidence in the Romanian economy is growing strongly. Recovery in all sectors, the most optimistic consumers in the last three years

Managers’ confidence in the Romanian economy increased significantly in March and April, at the highest level in the last three years, according to revised data published by the European Commission and analyzed by Profit.ro. The survey also measures consumer confidence again after a long hiatus.

The confidence indicator in the economy (economic sentiment indicator – ESI) was 105.1 points in April, compared to 104 points in March and 101.9 points in February, as a result of increased activity in all sectors.

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The ESI is calculated by the European Commission based on the responses of managers in the main sectors of the economy and has a high degree of correlation with the evolution of the gross domestic product. A value above 100 points generally indicates that the economy is growing.

For the first time after 2020, the survey also includes consumer perception for Romania.

The ESI was thus recalculated for the period of recent years and we see that the data indicated an economic contraction between the spring of 2022 and that of 2023, followed by a level close to that of stagnation.

In the first quarter of this year, the ESI averaged 102.8 points, compared to 101.7 points in the fourth quarter of 2023, 100.7 points in Q3 2023, and 99.9 points in Q2 2023.

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In the 4th quarter of 2023, the economy grew by 3% in annual terms, while it decreased by 0.5% in sequential terms (compared to the 3rd quarter). In Q3, the economy grew by 1.9% in annual terms, respectively 1% in sequential terms. For all of last year, economic growth slowed to 2.1%, from 4.1% in 2022 and 5.7% in 2021.

BCR expects an acceleration of the economy in the first quarter of this year and estimates an economic growth of 2.6% for 2024, against the background of the increase in private consumption and the contribution of investments supported by European funds.

“Based on the ESI data, we can expect a sequential increase in the first quarter of 2024, given that the average of the index was above that of the previous quarter. This is also our base scenario. The positive momentum looks set to continue into the second quarter given the ESI data for the first month,” says Vlad Ioniță, analyst at BCR.

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The Employment expectations indicator (EEI) is also rising from 106.3 points in February, to 108.5 points in March and then to 109.8 points in April, the highest level in the last five years.

At the European level, the ESI fell 0.3 points to 96.2 points amid weaker industry data, the weakest in almost four years.

“Today’s data shows that the economic recovery of the Eurozone remains an intermittent matter, at least for now. As we believe that the moderate recovery will continue, the speed of the disinflation process will be the defining factor for monetary policy.” says Peter Vanden Houte, economist of ING Bank, responsible for the euro area.

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The Dutch bank is still betting on a cut on the key date in June, the first of this monetary cycle, given that no negative inflation surprises emerged.

“But with US interest rates unlikely to be cut any time soon and expectations for eurozone selling prices still above their long-term average, the European Central Bank’s monetary easing is likely to continue in a snail’s pace”, adds the ING economist.

In Bucharest, the first cut of the BNR’s key rate is widely anticipated by analysts for the meeting in May.

Growth in all sectors

Consumer confidence improved 2 points in April to its best level in nearly three years, given revised data, after being hit hard by the COVID-19 crisis and then by high inflation and the invasion of Ukraine by Russia from early 2022.

The people surveyed have better assessments of the financial situation, the general economic situation and have higher expectations regarding a major purchase in the next year.

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“Consumer confidence reached a 5-year low in June 2022, significantly affected by the outbreak of the war in Ukraine and the onset of a high inflationary environment, and by mid-2023 this has dissipated, and currently confidence it seems to have returned to pre-pandemic values”, says the BCR analyst.

In manufacturing, confidence rose 0.6 points from March on higher orders and a better outlook for future business, while inventories rose. On the other hand, capacity utilization fell to below 69% from 71% in the first quarter, below the long-term average of 77%, which BCR said suggests demand remains weak and factories are operating below potential.

Managers in the services sector reported higher business and rising demand recently, while expectations for the future have deteriorated. The index increased by 1 point compared to March.

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In retail trade, the confidence index rose 2.8 points, on the back of strong sales growth in the recent period and higher expectations for orders for the next three months. These data are in line with recent data on strong trade growth at the start of the year, amid sustained wage gains.

In construction, the confidence index improved by 0.9 points, on the back of slightly increasing orders.

Inflationary expectations fell in all sectors except industry.