Romania’s gross domestic product was down 1%, in real terms, compared with the first quarter according to seasonally adjusted data. It was the biggest quarterly contraction in the European Union. According to Eurostat data published today, in the first quarter, Romania’s GDP declined 0.2% against the previous quarter, while previous estimations showed a 0.2% advance.
The decline surprised analysts, which were expecting a growth of around 0.5% in the second quarter.
“The figures are well below expectations, showing that the economic performance has worsened rapidly. The monthly indicators weren’t that bad but the final result for the second quarter is very weak,” said Ionut Dumitru, chief economist Raiffeisen Bank Romania.
Considering the retail sales data published each month by the statistics institute, which were posting a sound growth in the past months, analysts were expecting a consumption-driven growth in the second quarter
In his turn, ING Bank’s chief economist Vlad Muscalu said the figures were surprising and more monetary easing could follow to prop economic growth.
“Signals from the agriculture might be worrying, but we have to wait to see what are the explanations of this decrease.”
Most analysts say the decline is due to a plunge in investments, most notably in the public sector.
“The execution of the public budget for the first half of the year already indicated a plummet down in public investments. Private investments should have had also a poor performance in 2Q, as foreign direct investments fell by 10.3% year-on-year in 2H 2014,” a Raiffeisen report said.
The statistics institute will provide a detailed view of GDP data for the second quarter on September 3.
Compared with the same period of 2013, however, Romania’s economy stayed on a positive trend in April to June. The GDP was up 1.2% against the second quarter of 2013, and up 1.4% in seasonally adjusted data.
In the first half, Romania’s economy grew by 2.4%, as consumption rebounded and the industrial sector continued its good performance. First-half GDP was up 2.6% on the year, according to seasonally adjusted data.
But expectations were pointing more to a 3.5% growth in the first half.
Liviu Voinea, Romania’s minister of budget, acknowledged that the second-quarter figures are below expectations, but said the 2.8% growth estimated for the whole year is still possible.
“We forecast a 2.8% growth for the full year in the latest budget revision, and the 2.4% figure for the first half is within the target interval,” Voinea said.
“It is a slowdown of economic growth, not a decline. It’s like you were speeding with 130 kilometers per hour and you decelerated to 100 km/h. But you’re still going forward.”
The minister said that the second-half growth should be higher as Romania has enough “fiscal space.”
“The (budget) deficit after the first seven months is of 0.27% of GDP, which gives us space to increase public spending in the last five months.”