Country Report 2017

Romania

István P. Székely

Director

European Commission, DG Economic and Financial Affairs

Bucharest, 15 March 2017 European Semester

Stability and Growth Pact

Macro

eco

no

mic

Im

bala

nces

Pro

ced

ure

Strong

cyclical

growth

Fiscal

expansion Structural

barriers

Public

debt

Pro-cyclical fiscal policy

Wages

Current

Account

Inflation

Spreads

Limited

potential

growth

Cyclical upswing consumption-driven

-4

-2

0

2

4

6

8

10

11 12 13 14 15 16

% Private consumption

Public consumption

Gross investment

Net exports

Other

GDP growth

Pro-cyclical fiscal policy and growth above potential

-5,0

-4,0

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

-3,0

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

11 12 13 14 15 16 17 18

%

Fiscal impulse Output gap (rhs)

Deficit to widen on tax cuts and expenditure increases

30

31

32

33

34

35

36

37

38

39

2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenues Expenditures

Total revenues and expenditures adjusted for the cyclical component and one-off and other temporary measures

Forecast

Tax compliance remains low

41,3

37,2 36,7 34,5

37,9

13,5 14,4 15,0 14,7 14,0

0

5

10

15

20

25

30

35

40

45

50

2010 2011 2012 2013 2014

%

Romania EU-27

Deteriorating budget deficit and public debt increasing

With deficit widening public debt projected to rise… …and public debt is rising faster than for peers

0

2

4

6

8

10

12

14

Romania peer countries average

2010-2018 cumulative change in percent

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015 2016 2017 2018

Peer average

Romania

Public debt to GDP

Public debt ratios to gradually deteriorate

30

35

40

45

50

55

60

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Baseline no-policy change scenario SGP institutional scenario

Convergence Programme scenario

Volatile public sector wage growth

80

90

100

110

120

130

140

150

160

170

09Q4 10Q4 11Q4 12Q4 13Q4 14Q4 15Q4 16Q4

2012=100

Manufacturing(Nace C) Business services(G_N)

Public and other services(O_S)

Quality of public investment key for potential growth

One of the highest rate of public investment…

AUT

BEL

BGR HRV

CYP

CZE

DNK

EST

FIN FRA

DEU

GRC HUN

IRL

ITA

LVA

LTU LUX

MLT

NLD

POL

PRT

RO

SVK

SVN

ESP

SWE

GBR

1

2

3

4

5

6

3 3,5 4 4,5 5 5,5 6 6,5

Public

GF

CF

spendin

g,

2006-2

015 a

vera

ge, %

of G

DP

Quality of infrastructure

…but quality of investment is low

0

1

2

3

4

5

Roads

Air transportinfrastructure

Electricitysupply

Portinfrastructure

Railroadinfrastructure

Overallinfrastructure

2016-17

2010-11

The banking sector remains sound

…while profitability is improving

-10

-5

0

5

10

15

20

25

07 08 09 10 11 12 13 14 15 16

%

Return on Equity (%)EU (changing composition)Euro Area (changing composition)

Balance sheets are strengthening…

0

5

10

15

20

25

sept.09

sept.10

sept.11

sept.12

sept.13

sept.14

sept.15

sept.16

Non-performing loans (EBA definition)

Non-performing loans (NBR definition)

Link to the 2017 country report: http://ec.europa.eu/europe2020/pdf/csr2016/cr2016_romania_en.pdf

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