The increase in consumer spending drove trade deficit up (imports went up twice faster than exports) and the state budget will most likely see a deficit close to 3% of the Gross Domestic Product in the second half.
In a surprisingly critical position, Cosmin Marinescu, the presidential advisor on economic affairs, called into question the quality of the current economic growth:
“Post-crisis consolidation has been recently reversed. The continuation of this trend against the current growth dynamics indicates a procyclical trend that would weaken the budget and the economy in the event of a new crisis. The fiscal-budgetary framework is vulnerable.”
Romania needs another economic growth model, a sustainable one, which is not based on deficits, he added while at a conference organized by the Finance Ministry and the International Monetary Fund.
Finance Minister Anca Dragu says this economic growth of Romania is sustainable.
Back in Bucharest after four years, Jeffrey Franks, the IMF negotiator during the crisis, when salaries were cut, said he would rather see a sustainable growth of 3.5% a year for ten years in Romania than an over 4.5% growth a year for five years, and then a crisis.
Although Romania has made significant progress, there are still a lot of things to do in the healthcare, education, justice and state-owned company reform departments, he added.
The IMF is asking the government to postpone the 2017 fiscal relaxation steps and raises the question of the sustainability of the minimum wage raise, considering productivity is not improving at the same pace.
Ionut Dumitru, chief economist of Raiffeisen Bank, says the economy cannot go on much longer with this consumer spending growth, as the GDP is growing by 4% and consumer spending by 10%. Something is wrong. Consumer goods imports took off, and the trade balance is deteriorating at a really fast speed. Imbalances are building up.
Dragos Huru, a professor at the Bucharest University of Economic Studies and head of its Economy and Economic Policies Department, rhetorically wondered: why should this economic growth not be sustainable? Why not have tax cuts and wage raises? People first spend and then invest. I think we’re worrying over nothing and warn about the wrong things.
(English version by Loredana Fratila-Cristescu)