June 09, 2004
How long can this go on?
The relentless drum-beat of good economic news continues.
In the first quarter of 2004, Romania's economy grew at an annualized rate of -- wait for it -- 6.1%.
The growth was led by the industrial sector (which grew at 6.6%) and construction (7.2%). The service sector grew by 5.7% and agriculture by 5.4%... slow compared to the rest of the economy, but still not bad.
Inflation is continuing to fall smoothly, down from 14% in December to about 12% now, and on schedule to hit 9% by the beginning of next year. Meanwhile, real wages suddenly surged in the first quarter. After growing only sluggishly (like 1%-2% per year) for the last three years, they suddenly rose at an adjusted rate of nearly 10% after inflation.
The foreign trade deficit is still big and still growing -- but the rate of growth dropped sharply; if it continues to drop, then the deficit will stabilize this summer and then start to shrink before the end of the year. (The main cause of this seems to have been a sharp rise in commodity prices, especially things like aluminum, cement and steel -- all major Romanian exports.)
Foreign direct investment -- both greenfields and equity purchases -- is up by about a third since last year. It's still pathetically low compared to FDI in, say, Hungary, but it's expected to double in the next two to three years.
The leu is stable. Tax revenues are up. The government is projected to run another fiscal deficit this year, as usual... but the surge in revenues means that the deficit will fall to 2.1% of GDP, down from the originally predicted 3.0%. In theory, this means that Romania might see a balanced budget by 2007.
I have some thoughts on all this, but I'm going to save them for a later post. Just now I want to put the question to our readers:
Is this for real? And, if it is, how long can it go on?
Posted by douglas at June 9, 2004 10:30 AMConvergence rears its not-so-ugly head?
Euro-zone consumption is, if not healthy, at least less anemic than usual?
German exports _are_ healthy, and boosting demand for intermediate goods?
Renault and Valeo are gearing up big-time at the Dacia complex?
Posted by: Bernard Guerrero at June 9, 2004 06:16 PMSorry Doug, we've got you beat. Romania's growth this year is practically glacial compared to Iraq's--our admittedly rough numbers indicate an annualized economic growth rate of over 60% for 2004! Never mind that we're starting from a much lower base line and have billions of US supplemental funds priming the pump--pay no attention to that man behind the curtain, move along, move along...
...it's still the best GDP growth rate in the world today I think. You sure you want to stay in Bucharest when we have such a klondike potential here the next few years? :)
Posted by: Colin Alberts at June 10, 2004 06:14 PMBernard -- I don't believe in convergence (the idea that poor economies tend to grow faster than rich ones) per se. Otherwise Africa would have been getting rich very quickly over the last 30 years...
That said, *sometimes* convergence can happen. Romania might be one example. It's a bit early to tell. More about this in future posts.
As for Dacia, Eurozone stuff, German exports... none of the above. It's China.
I know of at least four major Romanian export industries (cement, steel, aluminum, and shipyards) that are being boosted by Chinese economic growth. If they're not selling to China directly, they're benefiting from surging prices for their goods -- which, of course, is happening because Chinese demand is driving up prices for these items worldwide.
Colin -- Colin! So good to hear from you. Please let us know how you're doing there.
As for Iraq... well, 60% annual growth will make the Iraquis the richest people in the world by 2010. Hmm.
Doug M.