EC: Romania’s economy shows “clear signs” of overheating

Economic growth is estimated to amount to 6.5 percent in 2008 and to 6.1 percent in 2009. However, EC experts say that gross domestic product (GDP) is likely to increase to 5.9 percent this year and 5.8 percent in 2009. The major challenges Romania is facing are a wide external deficit - estimated at 13 percent of GDP in 2007, lower financing from foreign investments, and a lack of correlation between public sector wage increases to levels stipulated in the convergence program.

The increasingly acute shortage of skilled and unskilled, a strong increase in wages, and a rise in individual bank loans are other signs of overheating, the EC document states.

The European Commission says Romania’s convergence program will require a more cautious wage policy for public sector employees in 2008-2010, but this does not seem realistic, given that wage increases were twice those planned in 2006 and 2007.

EC specialists say the fiscal policy should play a key part in stabilizing the economy and improving the quality of public finances, especially by shifting the focus to investments meant to up speed economic growth.