Slower growth for Romania, higher deficits for Bulgaria

Bulgaria’s Gross Domestic Product (GDP) rose 6.4%, while Romania’s growth amounted to 5.8% in the first half of 2007. Although initial forecast said the two countries would register growth significantly higher than EU’s average, analysts have darker outlooks for the second half of this year, especially as far as Romania is concerned.

Although posting growth twice as high as EU’s developed countries, Romania and Bulgaria rank among the last countries in the union as far as GDP per capita is concerned - only 34% of the average EU level.

Bulgaria had higher deficits due to the Monetary Council, which is usually set up in crisis situation, but slows down economic growth. “Bulgaria is not willing to give up the Monetary Council, even in the European system,” according to the Executive Director of the Group for Applied Economy (GEA).

Bulgarian authorities were considering joining the euro-zone four years before Romania, but current economic data would rather qualify Romania for an earlier enforcing the single currency. Romania’s Central Bank (BNR) forecasts joining the euro-zone in 2014, after complying with the convergence criteria.

While budget deficits for 2007 are within the convergence criteria (les than 3%), higher current account deficits are likely to impact on the already fragile balance of Romania and Bulgaria. Seven months after the EU accession, Bulgaria’s payment balance deficit amounts to €3 billion, for an estimated GDP of €27 billion for the entire 2007, while Romania’s current account deficit amounts to €9 billion for a GDP estimated at €115 billion.

In spite of all this, both countries are largely seen as attractive for investors. “The two countries growth potential is the higher in the EU, given we have to reach the standards of other members states,” said Bulgarian oil company Petrol’s Chief Financial Officer, Tsvetan Dimitrov.

The labor market

A relevant indicator of a developed economy is the percentage of people working in the service field. While the EU average is 30.3%, Romania employs only 16.5% of its workforce in services, far below Bulgaria’s ratio of 23%.

Romania has by far the highest percentage of population working in agriculture of all EU members, though agriculture is the least developed sector in Romania. One third of active Romanians are working in agriculture, compared to 8% in Bulgaria, which is slightly above the European average.

Romania registered the lowest ratio of employees not carrying out manual labor in Central and Eastern Europe, only 21.7%. Bulgarian specialists make up for 28 of the active population, which means the neighboring country has a work force better prepared for EU demands.

Labor costs of Romanian companies rose by 23.4% year-on-year in the second quarter after Romania joined the EU, according to the Eurostat, the Statistical Office of the European Communities. Labor costs in Bulgaria increased by a mere 14.6%.

The net average salary in Romania soared by some 15% in euro in the first seven months of 2007, up to €329 in July from €286 in January.

“Romania registers the highest salary growth pace in the entire region. Wages in Romania are higher than those in Bulgaria by one quarter,” said the General Manager of the Professional recruitment company, Cristina Pasat.

“The fact that many Romanians have the ability to speak foreign languages is one of their competitive advantages, unlike any of their neighbor countries, Bulgaria, Hungary, and the Czech Republic,” she explained.

The highest salary increases in Bulgaria in 2006 were registered in the top management and specialists fields, while in Romania “non-sales” jobs, such as administrative, HR, and IT positions, registered the most spectacular evolution, according to a salary study made by Mercer, the global leader for HR and related financial advice, products and services, in both countries.

Bulgarians and Romanians share the last two positions among EU members in terms of minimum wages, and purchasing power, respectively. Even though the minimum salary in Romania is higher than that in Bulgaria, Bulgarians surpass Romanians in terms of purchasing power.

In the first half of 2007, about 4,500 people were laid-off following restructuring processes or mergers and acquisitions in Romania. Bulgaria, however, did not restructure any jobs, according to the Eurofound statistics institute.