Economic growth in H1 below expectations

Growth in construction and improved income tax collection have not managed to make up for low contributions of the agriculture, processing and extracting industries to GDP, with economic growth in H1 at a mere 5.8 percent.

GDP’s deterioration in Q2 - only 5.6 percent advance, reflects some 80 percent of agriculture’s negative impact on economic growth. The economic growth level, as reported by the National Institute of Statistics (INS), is at its lowest since the last quarter of 2005, affected by floods. Advancements in constructions (31.7 percent), investments (17 percent), and services have contributed to an increase of GDP of up to RON 155.244 billion in the first half of the year, with GDP advancement in current price amounting to RON 86.75 bln.

Romanian economic engines registered stagnation in H1 2007, compared to economic evolution in 2006 (7.4 percent). The country's economic advance is about half of Slovakia's GDP advancement of 9.4 percent. Thus, in the context of even worse effects from negative results in agriculture in H2, the target of a 6.5 percent increase of GDP is unlikely.  The National Prognosis Commission (CNP) is getting ready to review GDP for 2007. "We are now evaluating. In a few days, we will have preliminary data on GDP evolution in 2007, but there will be no significant difference compared to current forecasts," CNP President, Ion Ghizdeanu, told Business Standard. Analysts contacted by Business Standard estimate a 6 percent increase in GDP. Even so, the evolution of Romania’s GDP tops EU estimates for economic growth in Hungary (2.8 percent) and Bulgaria (5.8 percent).

“I think we can be sure that economic growth will be below 6 percent, because negative agricultural results will significantly affect the second half. I estimate a 5.5-5.9 growth for 2007,” said Radu Craciun, Chief Analyst at ABN Amro. Agriculture’s contribution to GDP amounts to 14 percent. Negative net exports, fewer public jobs than scheduled, and poor EU fund absorption could explain GDP's underachievement, according to Liviu Voinea, Executive Director at the Group of Applied Economics (GEA). "It is obvious that negative net exports were higher than in 2006, which leads to a negative influence on GDP," explained Voinea.