Domestic consumer spending used to be the main growth driver of the local economy during the boom years, relinquishing that position to exports and agriculture afterwards. However, it regained the top spot in 2015, due to the not so good agricultural year compared with the fabulous 2014, after the drought hit local crops. Exports, the main growth driver in 2014 increased by 7% in January-November 2015, according to the latest data available.
Consumer spending is now expected to push the economic growth towards 4% in 2015 and to 4.1% (government calculations) or 4% to 5% (macroeconomics experts’ forecasts) this year.
“This (the trend of overall consumer spending in 2015 and especially at the end of the year i.e.) means GDP growth prospects in the fourth quarter improved from 4.2%, while agriculture will not have a negative impact,” says Silviu Pop, junior economist with ING Bank Romania.
Consumer spending rose by almost 9% in 2015, the highest growth after 2008, the last year of economic boom, driven by the rise in food, beverage and tobacco sales especially after June 1, following the enforcement of the VAT cut.
“Judging from statistics, we may say the food VAT cut had a positive effect on consumer spending. The certain thing is that it was a very good step taken against tax evasion,” says Gabriel Sincu, chief executive of audit and tax advisory firm EY Romania.
The fiscal steps that need to be taken at the moment, he says, are those meant to stimulate investment, which would require an improvement in the tax authority performance, curbing red tape and aggressive actions of tax inspectors.
“Or else we risk losing investment that could lead to a sound economic growth, since growth relying mostly on consumer spending without investment support eventually means indebtedness, imbalance of the balance of payments and worse problems in the future.”
(English version by Loredana Fratila-Cristescu)