Romania flag Romania: Economic and Political Overview

The economic context of Romania

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Due to the 2009 financial crisis, Romania endured an economic slowdown, especially in the automobile sector, which is subject to foreign demand. Financial difficulties pushed the country to seek financial help from the IMF, the European Commission and the World Bank. More recently, the Romanian economy was among the fastest-growing in the EU; nevertheless, the global crisis brought by the COVID-19 pandemic caused a drop of GDP in 2020, from which the country recovered fast in 2021 when growth was estimated at 7% by the IMF. Romania’s economy reached its pre-pandemic level already in the first half of the year, as growth was underpinned by strong domestic demand. The IMF forecast growth at 4.8% this year and 3.8% in 2023, with investment expected to remain strong, supported by the Recovery and Resilience Facility and other EU Funds. Foreign trade is forecast to benefit from easing of supply bottlenecks, but is not expected to contribute to growth.

Concerning public finances, the country experienced an expansionary trend in recent years, with a government deficit averaging above 4%, largely driven by pension increases. This trend was reinforced by the impact of the COVID-19 crisis, with the deficit estimated at 5.3% in 2021 (IMF), despite higher-than-expected tax revenues. The general government deficit is set to remain around 5.4% of GDP over the forecast horizon. Conversely, the expansionary fiscal policy prompted an increase in the debt-to-GDP ratio, which reached 51.1% in 2021 (from a pre-pandemic level of 36.8%). Despite the economic recovery, the ratio should follow an upward trend this year (52.9%) and in 2023 (54.9% - IMF). The steep and continuous increase in energy prices drove average inflation to 4.3% in 2021, with a forecast of 3.4% for 2022 (although the EU Commission sees the ratio rising to 5.3%).

An ageing population, the emigration of skilled labour, significant tax evasion, insufficient health care, and an aggressive loosening of the fiscal package may compromise Romania’s long-term growth and economic stability and are the economy's top vulnerabilities. With 35.8% of the population at risk of poverty or social exclusion, Romania remains one of the poorest countries in Europe (data by Eurostat). Furthermore, the COVID-19 crisis led to a rise in unemployment, estimated at 4.9% in 2021. Average wage growth remained solid at 7% (OECD) and a tight labour market is expected to push wages up over the forecast horizon.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 249.70e248.72287.28314.88345.32
GDP (Constant Prices, Annual % Change) 4.1-3.9e7.04.83.8
GDP per Capita (USD) 12,861e12,868e14,86416,29317,870
General Government Balance (in % of GDP) -5.1-6.0-5.3-5.4-5.4
General Government Gross Debt (in % of GDP) 36.849.8e51.152.954.9
Inflation Rate (%) 3.82.65.09.34.0
Unemployment Rate (% of the Labour Force) 3.95.0e4.94.94.9
Current Account (billions USD) -12.21-13.04e-16.39-17.40-17.90
Current Account (in % of GDP) -4.9-5.2e-5.7-5.5-5.2

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Romania has a labour force of 8.89 million people out of its 19.3 million population, though this number has been decreasing over the last decade due to the massive migration of Romanian workers to Western European countries. Agriculture represents around 3.8% of Romania's GDP and employs 21.2% of the country's active population (World Bank, latest data available). The main resources and agricultural production in Romania are cereals, sugar beets and potatoes. However, production remains very low in comparison with the country's potential capacity (more than one-third of the land is arable). About 25% of the country is covered by forest (especially around Transylvania), and the logging industry is developing very fast. Romania has a limited energy dependence thanks to coal, oil, gas and uranium reserves. According to data from Eurostat, Romania became the seventh-biggest agricultural producer in the European Union; nevertheless, the impact of the COVID-19 pandemic was heavy, with the sector recording the biggest decline in the EU in 2020 (-11.3.% -Eurostat).

The industrial sector contributes to 26.4% of the country's GDP and employs 30.1% of the active population. Thanks to inexpensive labour, its industry is diversified and competitive. Historically, manufacturing companies and the industrial sector represent the backbone of Romania's economy. For this reason, foreign direct investors are involved in heavy industry (metallurgy, steel), the manufacturing of vehicle parts, building and construction, petroleum refining and textiles. According to figures by the World Bank, the manufacturing sector alone contributes 15.7% of GDP. Data from the national statistical office show that in the first eleven months of 2021 industrial production increased by 7.5% year-on-year; nevertheless, it was still 3.4% lower than in 2019.

Romania's economy is mainly centred on the services sector, which represents 59% of the GDP and employs around 48.7% of the nation's workforce. Tourism, in particular, has been booming in recent years, reaching an all-time high of 13.26 million in 2019. After an unprecedented drop in tourism arrivals in 2020 due to the COVID-19 global restrictions, in 2021 the number of tourists increased by 46% y-o-y, although it was still 29.3% lower than before the pandemic (INSEE). The technology sector has also seen consistent growth in recent years, due to the emergence of a high-qualified workforce whose cost is lower than the European average. Romania's ITC sector accounts for around 6% of GDP (Romanian Software Industry Association).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 21.2 30.1 48.7
Value Added (in % of GDP) 3.8 26.4 59.0
Value Added (Annual % Change) -16.2 -5.5 6.0

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
69,5/100
World Rank:
43
Regional Rank:
26

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
6.61/10
World Rank:
37/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Sources of General Economic Information

Ministries
Romanian Ministry Economy, Trade and Tourism
Statistical Office
National Institute of Romanian Statistics
Central Bank
National Bank of Romania
Stock Exchange
Bucharest Stock Exchange
Economic Portals
Portal Info
 

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Latest Update: July 2022