Activity expanded by 2.5% in 2011, confirming what the Romanian president made public a month ago. I still wonder what is the point of Romanian Statistics Institute as Mr President has made it a habit of “front-running” it when it comes to positive news. This is also an important distinction as only the positive news get the “early release”. But I digress. Today should be about the GDP release not about the politics around it.
Here briefly are the details. The 4Q11 contracted by 0.2% surprising on the downside. The main surprise is that contraction came to early, as most expected contraction in 1Q12. The other surprise is relative to other European countries which for the most part reported surprises on the upside.
In my view in the absence of pro-growth fiscal and monetary policies 2012 will be another year of stagnation. I do not venture to say recession yet but the dividing line is very thin. The readers of this blog know that in my view those pro-growth policies are: significantly lower income and profit taxes, lower social contribution tax, a functioning interbank market at maturities up to one year and a flexible exchange rate.
There is also another conclusion: austerity does not work during crisis. I said this many times before and I will keep saying it. We see this in Greece, Portugal, Spain, Italy and Romania. Unfortunately for Romania the austerity is not seen in lower public debt or lower overall expenditures. In Romania austerity took the form of higher taxes which are always and everywhere contractionary.