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ROMANIA - ECONOMIC OVERVIEW

By courtesy of the National Institute of Statistics and Ministry of Economy and Commerce

The evolution of Romanian economy during 2001-2006

During 2001 - 2005, the Romanian economy has been identified by efficient and relevant macroeconomic equilibrium between the economic growth, on one side, and dis-inflation process, and alleviation of domestic and external deficits, on the other side.

The quantitative ranges and particularly the qualitative economic changes - as a direct result of the deep structural reforms - reflect the considerable progress that has been achieved in setting up an operational and dynamic market economy.

Today, the real challenge is to maintain the economic growth, to preserve and consolidate the macroeconomic equilibrium, precondition for Romania's accession to the European Union in 2007

Economic growth

Overall, 2005 was a very good year for the Romanian economy. The recovery continued at a robust rate. The economic results achieved in 2005, as the gross domestic product growth by 4.1% and the average inflation rate of 11.9% prove the sustainable development stage of the Romanian economy.

Not only that 2005 represents the fifth consecutive year with a real economic growth for Romania but the most important are the results of the last years that were continuously both above the European average and most of the other Candidate Countries (except the Baltic States). These results were achieved despite of the general critical international economic context and the important economic growth slowing down of the European countries - in fact, main Romanian commercial partners (France, Italy, and Germany).

Gross Domestic Product estimated for 2005 was RON 287186.3 million RON current prices, increasing - in real terms - by 4.1% as against 2004. It is expected to continue to register an improved positive evolution. The branches contribution of the gross domestic product formation shows a right evolution towards the modern economic structures specific for the developed economies. In this way it is relevant the fact that due to the structural reforms which have been done, the Romanian economy has had the capacity to comply rapidly with the market demands turning to a good accounts of the opportunities from the international economic environment in real time.

The structure of the gross domestic product, by categories of resources put in evidence the following issues: the share of the industry and agriculture in the total GDP continued to decrease (from 27.7% in 2001 to 24.4% in 2005 for industry; from 13.3% in 2001 to 8.9% in 2005 for agriculture); the share of construction sector increased (from 5.3% in 2001 to 6.5% in 2005); the share of the service sector in GDP represented over 48.3% of total GDP and its tendency is ascendant.

In 2005, the evolution of GDP per its main resources reflected a faster growth - than the one of GDP - for: construction and services (by 9.9% and by 8.1%) whose whole contribution to GDP was 54.8%.

The Romanian growth was supported both by the domestic and external demand. In the year 2005 the domestic demand (investment and private consumption) represented the main factors which have supported the economic growth.

The total final consumption increased in 2005 - in real terms - by 8.5% face to 2004; its share in the gross domestic product was of 87.7% and it was focused mainly on the final consumption of the households (77.8%). Actual final consumption of households increases by 9% in 2005 face to 2004.

Gross Domestic Product growth,
during the period 2001-2005

- %, previous year=100 -

¹⁾ Semi-final data.²⁾ Provisional data.

In 2005, the gross fixed capital formation increased by 13.0% compared with 2004. The gross fixed capital formation posted the highest growth rate over the last three years. The share of gross fixed capital formation in the gross domestic product was of 23.1%.

Investment rate determined by its ratio to gross value added per economy was 26.2% in 2005 (compared with 24.3 % in 2004).

The value of net export was in 2005 - RON 29,792.3 million, more than in 2004, as a result of higher growth of imports volume for goods and services (+17.2%) as compared to that of exports of goods and services (+7.6%).

The positive results registered by Romania in its general economic growth process are confirmed by the weight of the private sector in GDP. In 2005 the contribution of the private sector was 70.4% of total gross economic product, comparatively by 68.0% in 2001.

Evolution of Gross Domestic Product

Gross Domestic Product

Gross Domestic Product per inhabitant

Gross Value Added Rate

Investment Rate

¹⁾ Semi-final data.
²⁾ Provisional data.
³⁾ Estimations based on the results of the European Comparison Programme (ECP) -1999 rounds.
⁴⁾ Result based on the European Comparison Programme (ECP) - 2002 round.
⁵⁾ Estimations based on the results of the European Comparison Programme (ECP) -2002 rounds.
⁶⁾ Preliminary results.
⁷⁾ Previsions.

Indices of Gross Domestic Product
by categories of resources (%)

1998=100

¹⁾ Semi-final data.
²⁾ Provisional data.
³⁾ Including fishery and pisciculture.
⁴⁾ Including electric and thermal energy, gas and water.

Indices of GDP by Uses (%)

1998=100

Gross National income (GNI)

Gross Domestic Product by category of
resources and category of uses

(million RON current prices)

¹⁾ Semi-final data.
²⁾ Provisional data.
³⁾ Including fishery and pisciculture.
⁴⁾ Including electric and thermal energy, gas and water.

Contribution of main activities in Gross Domestic Product

(%)

¹⁾ Semi-final data.
²⁾ Provisional data.
³⁾ Including fishery and pisciculture.
⁴⁾ Including electric and thermal energy, gas and water.
⁵⁾ Total services.

The share of the private sector in gross domestic product and
the gross value added of main activities in the national economy

(%)

¹⁾ Semi-final data.
²⁾ Provisional data.
³⁾ Including fishery and pisciculture.
⁴⁾ Including electric and thermal energy, gas and water.
⁵⁾ In 2002, 2003, 2004 and 2005, public sector enterprises had a negative gross value added as a result of registered losses.

Gross Domestic Product estimated for the first quarter of 2006 amounted to RON 61,034.7 million current prices, increasing in real terms by 6.9% as against the same quarter of the previous year.

The growth was mostly determined by the increase in the activity volume and consequently, of gross value added in industry (+4.8%), construction (+20.4%) and services1) (+6.8%), whose contribution to the gross domestic product was estimated to 84.2%.

It should be underlined that agriculture has a relatively low contribution to the gross domestic product formation (2.7% in GDP in the first quarter of 2006), the animal production prevailing.

Final actual consumption registered a growth of 10.2% in the first quarter of 2006 as against the same quarter of the previous quarter.

The growth of final actual individual consumption of population households (by 10.9%) was especially determined by the increase in retail sales of goods (+20.4%).

Gross fixed capital formation (GFCF) registered a growth of 11.4%, investment rate determined by its ratio to gross value added in the economy being 18.0%.

Within GFCF, investments represent 88.8% of total value.

Current account deficit increased in the first quarter of 2006 as against the same quarter of the previous year as a result of more accentuated growth of imports of goods and services (18.7%) as compared to exports of goods and services (+13.0%), this having a negative impact over GDP dynamics.

¹⁾ Comprises the activity of trade, transport, post and telecommunications, tourism, hotels and restaurants, general government and defence , education, health and other services for economic units and population.
²⁾ Represents the difference between taxes on products cashed (VAT, excise duties, other taxes on product) and subsidies on product paid from public consolidated budget.
³⁾ Comprises: expenditure of population households for purchasing goods and serivices to satisfy their members’needs, expenditure for individual consumption of general government (education, health, culture, sport recreation activities etc), and expenditure for individual consumption of non-lucrative institutions in the households’ service.
⁴⁾ Comprises expenditure for collective consumption of general government (general public services, national defence, public order, research-development, etc).

In September and during 1.I – 30.IX.2006, economic activity is characterized by the further keeping of an upward trend, in comparison with the same period of 2005, this being registered in the last months. This trend points out the persistence of a climate consolidating the main economic indicators, mainly in the activities of construction, trade and retail, services as well as in industry.

This fact was determined by the favourable conditions generated by the low level registered by the inflation rate, the evolution of earnings, including real earning, as well as the relatively low level of unemployment.

Imports of goods further registered a rate exceeding the exports, resulting in the growth of commercial deficit, which practically had a constantly upward evolution.

Synthesis of the evolution of main economic indicators in September and
during 1.I. – 30.IX.2006 as September 2006

²⁾ Comprise wholesale and retail trade, maintenance and repair of motor vehicles and motorcycles, retail trade of fuel for motor vehicles.

Growth rates for the main indicators in September 2006 as against September 2005 did not point out significant evolutions in comparison with August 2006 as against the same month of the previous year. It should be mentioned only the lower growth rates of exports of goods by 6.1% in September as against 7.8% in August 2006, respectively of import, by 18.8% as against 24.2%, and consequently the lower commercial deficit by 152.5% as compared to 160.7% registered in August.

It should be also pointed out the growth of turnover in the field of market services for the population by 31.1% in September 2006 as against September 2005, in comparison with the index under 100% (98.3%) registered in August 2006 as against August 2005.

A more dynamic evolution, generally a positive one was pointed out by the growth rates for the main indicators registered in September 2006 as against August 2006, in comparison with August as against July 2006. Therefore, industrial production which registered a growth of 6.5% in September as against August, exceeds by over 7 percentage points the index of the previous month which registered a decrease (99.4%) as against July 2006. The growth was mainly determined by the evolution of manufacturing production, its index being higher by almost 9 percentage points as compared to the previous month. On the contrary, in September 2006, the production of electric and thermal energy, gas and water was by 11.1 percentage points under the index registered in August as against July.

Derived indicator – labour productivity in industry – registered a growth by 7.8 percentage points (107.5% as against 99.7%).

The same trend is also registered by the dynamics of other indicators, such as: construction works, FOB export of goods, CIF import of goods, turnover in the field of market services for the population.

Exceptions from the mentioned positive evolutions are noticed for the indicators: turnover in retail (90.3% as against 107.3%) and turnover in trade with motor vehicles and retail of fuel for motor vehicles (88.4% as against 106.5%).

As a result of the evolution of the main short term economic indicators in September 2006, related to the same trend registered in the previous months too, the cumulated situation during 1.I.– 30.IX.2006, as against the same period of 2005, is kept in the same limits, the only change to be pointed out regarded the turnover in the field of market services for the population, which registered a rate growth by about 3 percentage points as against during 1.I. – 31.VIII.2006, in comparison with the same period of the previous year.

Gross Domestic Product estimated for the third quarter of 2006 was 92662.9 million lei (RON) current prices increasing, in real terms, by 8.3% as against the same quarter of the previous year. In the first nine months of 2006 gross domestic product was 229571.6 million lei (RON)current prices, by 7.8% more than in the same period of the previous year.

In the first nine months of 2006, the growth of gross domestic product was mostly determined by higher volume of activity and implicitly, of gross value added in industry (+7.1%), construction (+17.7%) and services (+7.8%), whose contribution to gross domestic product was estimated to 80.8%.

We should point out that agriculture, whose contribution to gross domestic product formation became important in the third quarter, significantly influencing the gross value added estimated for the first nine months of the year (7.0% in GDP during 1.I - 30.IX 2006) increased its activity volume by 3.5%.

Actual final consumption registered a growth by 11.0% during 1.I - 30.IX.2006 as compared to the same period of the previous year. The increased of the actual final individual consumption of private households (by 12.0%) was determined in particular by higher volume of goods’ sales through retail trade (+22.7%).

Gross fixed capital formation (GFCF) registered a growth of 13.7%, investment rate determined by its ratio to gross value added in the economy being 26.7%.

In GFCF, investments represent 90.2% of total value.

Current account deficit increased in the first nine months of 2006 as against the same period of the previous year as a result of quicker growth of imports of goods and services (+19.1%) as compared to exports of goods and services (+11.4%), this having a negative impact over gross domestic product dynamics.

Growth rates for the main indicators of October 2006 as against October 2005 did not point out significant evolutions in comparison with September 2006 as against the same month of the previous year. However, it should be mentioned the increase in the growth rates of turnover in industry from 1.4%

in September to 11.0% in October 2006, export of goods from 6.4% to 15.8%, respectively of import from 18.8% to 26.0% and therefore the growth of deficit in absolute terms.

As a result of main short term economic indicators evolution in October 2006, bounded by the same trend registered in the previous months, the situation per total during 1.I. – 31.X.2006, as against the same period of the last year is practically kept in the same limits.

The Evolution of Gross Domestic Product

Indices of Gross Domestic Product by Main Categories of Resources

Indices of Gross Domestic Product by Uses

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