Romania Watch: Strong performance for private consumption and investments in Q1

The large GDP advance in Q1 (2.8% qoq) was fuelled by solid gains of private consumption and of investments which already have reached their pre-pandemic levels of Q1 2020. In our view, real GDP might expand by 7% this year, by 4.7% in 2022 and by 4.5% in 2023.

Private consumption and investments above their pre-pandemic levels as of Q1 2021

National Institute of Statistics, RBI/Raiffeisen Research

Detailed GDP data published today confirmed the strong economic performance in Q1 2021 as already revealed by the flash estimates published on 18 May. Thus, in Q1 2021 real GDP recorded a large increase of 2.8% as compared to Q4 2020, while decreasing by only 0.2% from its level in Q1 2020.

In line with our expectations, the solid real GDP growth in Q1 was supported by the key components of domestic demand. Household consumption rose by 2.6% in Q1 2021 on a quarterly basis, the advance being sustained by the favourable developments that materialised on the labour market (increase of wages, increase in the number of employees) and by easing of some COVID-19 containment measures. Gross fixed capital formation increased by 1.0% qoq in Q1 2021, and gains should have been recorded both for the private and public investments, in our view. Investments in the private sector proved to be very resilient against the pandemic in 2020, while the government increased the public investment spending substantially in 2020 and in Q1 2021. As a matter of fact, our in-house seasonal adjustment models point to even faster quarterly advances both for private consumption and investments in Q1 than the ones that have been generated by the seasonal adjustment models used by the statistical office. In fact, the strong performance of private consumption and of investments in Q1 2021 is also revealed by their positive annual dynamics (+0.8% versus Q1 2020 for private consumption and +9.9% versus Q1 2020 for gross fixed investments).

On the other hand, the real GDP advance in Q1 2021 was limited by the negative contribution stemming from the enlargement of the foreign trade deficit as imports of goods and services (+3.0% vs Q4 2020) increased faster than exports (+0.3% vs Q4 2020).

Our baseline scenario assumes continued economic growth in the following quarters and a real GDP advance of 7% this year. We expect real GDP to grow by 4.7% in 2022 and by 4.5% in 2023. Private consumption should continue on an upward trend in the following quarters thanks to increasing disposable income and due to the reopening of the economy (with a favourable impact on consumption of services). We foresee a strong performance for investments both this year and in the following years as these should benefit from the improvement in the absorption of EU structural funds and from the start of the Recovery and Resilience Program.

Strong economic performance foreseen for the years ahead
National Institute of Statistics, RBI/Raiffeisen Research