Finally we can lay to rest all the talk around the Romanian economic growth in 2011. Romanian Statistics Institute released the detailed data yesterday. The economy grew in real terms by 2.5% relative to 2010. Main contributions came from the agriculture and industrial sector. Does this mean that we are out of the woods? Not so fast.
The details about the drivers behind the Romanian performance in 2012 will be thrown at you from every angle by the mainstream media. I would like to present a different approach as I do not think what happens in one year in some sector has any information regarding the future dynamic of the economic growth.
Here is the Romanian annual real performance versus the EU27 one. It does seem that EU27 leads Romania by one year.
But looking at yearly data hides most recent performance which is actually the basis for growth in the very short term. Let’s then look at quarter on quarter growth for the two. The conclusion that EU27 leads Romanian economic performance stands.
For 2012, there are two main sources for Romanian growth: internal and external. On the internal side we need to look if there is any pick up in business investment (i.e. gross fixed capital formation) and if consumers are starting to spend.
On the GFCF the graph below the quarterly performance does not support the view that companies are investing more. There is some investment but not enough to push the economy further in 2012.
On the consumption expenditure side, things look a little better. But even here we see signs of fatigue and without a tax cut in 2012 my fear is that consumption expenditures will have a lower dynamic.
This view on expenditure is supported by the graph below: disposable income growth. Very weak signs that disposable income will grow at a fast enough pace in 2012 to support more consumption expenditures.
If internally things do not look very cheerful maybe the help can come from outside Romania. Unfortunately not in 2012. Here is a very interesting graph showing the EU27 Imports growth versus Romania’s exports growth. Historically a very nice correlation which points to weakening demand from EU27 and thus lower export dynamics for Romania. I find this graph very revealing about Romanian export dynamics.
To sum it up, domestic and external factors do not point to a very good performance of the Romanian economy in 2012. Then why is the forecast for Romania look so different than for EU27 in 2012 (graph below)? What is the other dimension I am not looking at here that might keep Romanian growth in positive territory in 2012? Of course you know it: government expenditures. Apart from lower taxes the only way Romania will show positive growth in 2012 is if it increases government expenditures. Aa 2012 is an election year chances are that this will happen. Let’s wait and see.