Romania’s economy should this year surpass the stagnating economies of neighboring states, helped by European funds, a stable currency and foreign investments, stimulated in part by the relocation of activities from Russia and Ukraine, reports Reuters, according to agerpres.ro.
The increase from 2023 follows a decade in which Romania, one of the poorest countries in Europe, reduced the gap that separates it from neighboring countries to become the second largest economy in Eastern Europe, after Poland. According to the most recent Eurostat data, GDP per capita expressed in standard purchasing power parity (PPP) in Romania stood at 74% of the EU average in 2021, an increase of 21 percentage points compared to 2010.
The International Monetary Fund expects Romania’s economy to register an advance of 3.1% in 2023 and even a more modest estimate by the European Commission of a 1.8% advance would place it ahead of Poland, which is expected to register a 0.7% increase, and Hungary, which will face an economic slowdown and accelerated inflation.
Romania’s prospects are supported by its status as an EU member country and its good relations with Brussels.
While the authorities in Budapest and Warsaw are arguing with Brussels over the rule of law conditions that are imposed for the granting of billions of euros in aid provided for in the Recovery and Resilience Mechanism, Romania has already drawn over six billion euros in the form of grants and low-interest loansReuters notes.
Prime Minister Nicolae Ciucă has already announced that the Bucharest Government wants to access over 10 billion euros annually this year, the equivalent of 4% of GDP, from the European funding amounting to approximately 90 billion euros that will be made available to Romania until 2027.
S&Pwhich, like other rating agencies, gives Romania the lowest qualification in the investment grade category, pending the reduction of the fiscal deficit, said that Romania is expected to make progress with the agreed reforms to obtain European funds.
The stability of the Romanian leu is another positive factor, especially compared to the Hungarian forint, which last year hit several historic lows. The higher wages across the border have already led some Hungarian citizens to accept jobs in the industrialized areas of western Romania.
The fiscal deficit, difficult to reduce before the elections in Romania
However, there are still some obstacles for the Romanian economy, such as the large current account deficit, the aging of the population and the bureaucracy that has hindered the development of infrastructure. Reducing the fiscal deficit will be difficult before the 2024 elections.
Foreign investments in Romania
Companies that relocated their activities from Russia and Ukraine to neighboring countries with low costs made foreign investments in the January-October period reach 9.39 billion euros, the highest figure since Romania’s accession to the EU.
A survey carried out in 2022 by the consulting firm Ernst&Young shows that more than half of the 101 foreign companies interviewed were planning to start or expand their operations in Romania, especially in the fields of logistics and supply chains, which places Romania in fourth place in Europe according to the intention to invest.
“We are optimistic that investments will continue to grow in the coming years, also encouraged by European funds”, says Alex Milcev, partner at E&Y Romania.
Although Romania does not have a single investment promotion agency, officials from the Ministry of Entrepreneurship and Tourism told Reuters that they are overseeing five possible relocation projects from Russia, Belarus and Ukraine with an estimated value of 705 million euros.
One of the companies that decided to relocate to Romania is the Finnish tire manufacturer Nokian Tires, which announced that it plans to invest 650 million euros to build a factory in Oradea, a region in northwestern Romania.
“It was clear that Oradea is the best location for our new plant,” said Päivi Antola, director of investor relations at Nokian Tyres. Päivi Antola stated that the Finnish company analyzed over 40 possible locations and looked in particular at the available workforce, logistical advantages, renewable energy sources and access to the railway network.
Justice in Romania
On the other hand, progress with judicial reforms led the European Commission to recommend, in November, the lifting of the cooperation and verification mechanism (MCV), established in 2007, when Romania joined the EU bloc.
“Provided that all the anti-corruption measures provided for in the plan regarding the Recovery and Resilience Mechanism will be implemented correctly, Romania could become an example of good governance in the region,” a European official who wanted to remain anonymous.
How are Romania’s neighbors – Hungary, the Czech Republic and Poland
“This is a completely new development and I would draw the attention of anyone in Hungary to a further depreciation of the forint or an absence of an increase in the minimum wage,” says Sandor Baja, director for the Czech Republic, Hungary and Romania at recruitment firm Randstad.
A recent Reuters poll shows that most economists expect another significant depreciation of the Hungarian forint in 2023, while the Romanian leu’s exchange rate will fall only slightly.
Set designer Zoltan Dio, who lives near Debrecen, the second largest city in Hungary, has been working for several years in Romania, where he has an account in lei that allowed him to protect his savings from the fluctuations of the Hungarian forint, which last year lost 8 % of the value in relation to the Romanian leu. “If I could find a job in Hungary, after many negotiations, I could earn about two-thirds of what I earn in Romania without problems”, says Zoltan Dio, according to Reuters.
